Mortgage Prepayment vs Investment Calculator

This free calculator answers whether an extra $500 a month is worth more paid against your mortgage or invested in the market. It runs both scenarios side by side over your remaining loan term, accounting for your mortgage rate, expected return and tax treatment, and names the higher-dollar outcome at the date your mortgage would otherwise have been paid off.

Do You Actually Get the Mortgage Interest Deduction?

Most homeowners assume they do, and most are wrong — which makes prepayment look worse than it really is. The deduction is only worth something if your itemized deductions beat the standard deduction, which for 2026 is $16,100 single and $32,200 married filing jointly. A couple with a $350,000 balance at 6.5% pays roughly $22,600 of interest in year one; even adding the SALT deduction they may land near or below $32,200, in which case the mortgage interest is worth exactly nothing and their effective mortgage rate is the full 6.5%, not 4.94%. Check your last Schedule A before assuming a discount. The IRS Publication 936 sets out the rules; the One Big Beautiful Bill Act made the $750,000 deductible-balance cap permanent and restored the mortgage insurance premium deduction.

The Core Math — After-Tax Comparison

Compare your effective after-tax mortgage rate to your expected after-tax investment return. If you do itemize and you're in the 24% federal bracket, a 6.5% mortgage has an effective rate of about 4.94% on the deductible portion — the first $750,000 of balance, a cap now permanent under the One Big Beautiful Bill Act. If you take the standard deduction, that adjustment does not apply and you should compare against the full 6.5%. 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.

Updated 10 August 2026. Sources: IRS Publication 936 — Home Mortgage Interest Deduction, IRS Topic 505 — Interest Expense, Bogleheads.