Calculator: pay down the mortgage or invest
Paying down a mortgage gives you a guaranteed return equal to your mortgage rate; investing only pays off if you expect to beat that rate after taxes and fees while taking on risk. With mortgages under 3%, investing tends to win long-term; above 6%, paying down is almost always the more efficient move.
Formula: Compares the interest saved by paying down the loan with the future value of investing the same amount at the expected net return.
Pay down the mortgage or invest? Calculator
Compare the guaranteed savings of an extra mortgage payment with the expected after-tax return of investing the same amount.
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How to use it
- Mortgage details. Outstanding balance, rate and remaining term.
- Amount available. The money you could put toward either option.
- Expected return. Net of fees, with capital gains tax factored in.
- Decide with the margin in mind. If the gap is small, the peace of mind of owing less may matter more.
What a spreadsheet won't show you
Paying down debt reduces risk: it lowers your payment or term and improves your ability to weather a bad year. Investing raises expected return but also the volatility of your net worth. When the two options are close, the right call is usually the one that lets you sleep better.
- Adjustable-rate mortgage: paying down protects against future rate hikes
- Cheap fixed-rate mortgage: investing gains an edge over time
- Never raid your emergency fund to pay down debt
Taxes change the math
Long-term capital gains are typically taxed at 0–20% federally in the US (plus state tax), which lowers the net return on investing. Compare that after-tax return with your mortgage rate before deciding.
Frequently asked questions
- What if I do both?
- That's the most common and sensible approach: split extra cash between paying down debt and regular investing. You cut debt while still building your portfolio.
- What expected return should I use?
- A conservative, net figure: 6–7% a year for a diversified portfolio after fees, with capital gains tax deducted when you eventually sell.