Mortgage Prepayment vs Investment Calculator
Compare paying $500/month extra on a 6.5% mortgage vs investing $500/month in an S&P 500 index fund. Includes tax treatment of mortgage interest and capital gains.
| Prepayment path (extra to principal) | |
| Total interest paid (with extra) | — |
| Months to payoff | — |
| Interest saved vs no-extra baseline | — |
| Investment path (invest extra monthly) | |
| Investment portfolio at payoff date | — |
| Mortgage interest paid (no extra) | — |
| Effective after-tax mortgage rate | — |
Should you pay extra principal on your mortgage or invest the same amount in the stock market? The answer depends on three variables: your mortgage rate, your expected investment return, and your tax bracket (which determines the mortgage interest deduction benefit). This calculator runs both scenarios in parallel and identifies the higher-dollar outcome at the time your mortgage would have been paid off.
The Core Math — After-Tax Comparison
Compare your effective after-tax mortgage rate to your expected after-tax investment return. If you're in the 24% federal bracket itemizing, a 6.5% mortgage has an effective rate of ~4.94% after the interest deduction (only on the deductible portion — the first $750K of mortgage balance under current law). The S&P 500 historically returns ~10% before taxes and ~8% after long-term capital gains in a taxable account. Investing wins on expected value, but mortgage prepayment is the only risk-free positive return available to retail investors.
Why Most People Should Max Tax-Advantaged Accounts First
Before deciding between prepay vs invest in a TAXABLE account, max your 401(k) (especially with employer match), Roth IRA, and HSA. A 401(k) match is an instant 50-100% return — nothing in mortgages or markets beats that. Even unmatched 401(k) contributions in a 24% bracket save $24 in taxes per $100 contributed, an instant 24% return. Only after maxing tax-advantaged space does the prepay-vs-taxable-invest debate matter.
The Behavioral Case for Prepayment
Mortgage prepayment offers psychological benefits the spreadsheet can't measure: guaranteed savings, immune to market crashes, faster path to debt-free status, lower retirement income needs. Studies show retirees with paid-off mortgages have significantly higher reported life satisfaction than retirees still carrying mortgages. For risk-averse borrowers or those nearing retirement, the certainty of prepayment often outweighs the expected-value advantage of investing. See our debt snowball calculator for the psychological case.
Last updated May 2026. Sources: Bogleheads.