Legacy Investing CalculatorsShow

Mortgage vs index investing

Should extra monthly funds repay the mortgage or go into an index fund?

Your numbers

$
%
%

Before tax and fees. Historic averages are not a guarantee

yrs

Investing ends ahead

$9,295

Value of investing the extra$96,203
Value of the guaranteed mortgage return$86,908
Total extra deployed$57,600
Rate gap1.50%

Tip. Weigh liquidity and risk alongside the arithmetic. A tie on paper favours the mortgage.

Assumptions

  • Paying principal earns a guaranteed return equal to your mortgage rate, so both paths are modelled as the same monthly amount compounding at their respective rates.
  • The mortgage side is risk-free and the investing side is not. A tie on paper is a win for the mortgage.
  • Ignores taxes on investment gains, the mortgage interest deduction, employer match on retirement accounts, and liquidity.
  • Assumes the mortgage still has at least this many years left. Once it is paid off, the comparison ends.

Explore the numbers

Examples and charts

Start with a scenario, then read the response curve to see which input actually moves the answer.

Example 1

High mortgage rate

A rate close to expected market returns, where the guaranteed option looks strong.

How much investing beats paying down the mortgage

$3,229

Example 2

Typical gap

A mortgage well below expected returns, which is the usual argument for investing.

How much investing beats paying down the mortgage

$9,295

Example 3

Low legacy rate

An older low-rate mortgage, where the case for paying it down early is weakest.

How much investing beats paying down the mortgage

$25,872

Sweeps expected investment return from half to one and a half times your value, holding everything else fixed.

Response curve

How expected investment return moves the result

How much investing beats paying down the mortgage

$9,295

-$10k$0$10k$20k$30k$40k4.0%6.0%8.0%10%12%
Chart axis: Expected investment returnNow 8.0% → $9.3k

What this calculates

Compares deploying the same extra dollars toward mortgage principal against investing them. Paying principal earns a guaranteed return equal to your mortgage rate, so both paths are modelled as the same monthly amount compounding at their respective rates.

How to use it

  1. Start with extra monthly dollars and work down the form, or load an example to begin from a realistic case.
  2. Read the headline result alongside the supporting rows, which show the intermediate figures behind it.
  3. Check the assumptions. They decide what the number includes and, more importantly, what it leaves out.
  4. Sweep expected investment return on the response curve to see how much it actually moves the answer.
  5. Run a cautious case as well as an optimistic one before using the estimate in a decision.

Common mistakes

  • Ignoring that investment returns are uncertain while the mortgage saving is not.
  • Comparing a pre-tax investment return to an after-tax mortgage rate.
  • Locking cash into home equity with no emergency fund, then borrowing it back at a worse rate.

Formula

Both paths compound the same monthly amount: the invested path at your expected return, the mortgage path at your mortgage rate, since each dollar of principal repaid avoids exactly that rate.

Inputs

  • Extra monthly dollars
  • Mortgage rate (%)
  • Expected investment return (%). Before tax and fees. Historic averages are not a guarantee
  • Comparison years (yrs)

FAQ

Why compare against the mortgage rate?

Because every dollar of principal repaid avoids exactly that rate of interest, with no uncertainty. It is the cleanest available benchmark for a risk-free return.

Is a higher expected return enough to settle it?

No. The mortgage return is certain and the market return is not. Most people should require a meaningful gap, not a narrow one, before choosing the uncertain path.

What should I do before either?

Clear high-interest debt, hold an emergency fund, and capture any employer retirement match. A match is an immediate return neither of these options can compete with.

How do taxes change this?

They can push either way. Investment gains are usually taxed unless the account is sheltered, which favours the mortgage. Mortgage interest may be deductible if you itemise, which favours investing. Both depend on your situation.

Are these numbers financial advice?

No. They are educational estimates based on the inputs and assumptions on this page. Confirm important decisions with a qualified professional and your own documents.

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