Mortgage Prepayment vs Invest Calculator
Should you prepay mortgage or invest the extra cash? The answer depends on your mortgage rate vs expected after-tax investment return. At 6.5% mortgage vs 7% market return — close call. At 3.0% mortgage vs 7% return — invest wins by huge margin.
The Core Decision
Compare your after-tax mortgage rate to your after-tax investment return. After-tax mortgage rate = mortgage rate × (1 - tax bracket) IF you itemize. Most filers (90%+) take standard deduction, so mortgage interest is NOT deductible — full mortgage rate is the hurdle. Standard rule: if mortgage > expected return, prepay. If mortgage < expected return, invest.
After-2017 Standard Deduction Reality
Tax Cuts and Jobs Act doubled standard deduction to $30,000 MFJ (2026). For most filers, mortgage interest deduction provides zero benefit because they take standard deduction. This means a 6% mortgage costs full 6% after tax — much higher hurdle than the historical narrative suggests.
Risk-Adjusted Decision
Prepayment is a guaranteed return at your mortgage rate. Investing has higher expected return but with volatility. For risk-averse investors, the certainty of prepayment is worth 1-2 percentage points of expected return. For high-risk tolerance investors with 20+ year horizon, equity returns historically beat any mortgage rate.
Source: Vanguard Asset Allocation Research 2025, Federal Reserve Bank of Cleveland Mortgage Deduction Analysis. Last updated: May 2026.