This is the amount you'd pay *in addition* to your regular mortgage payment.
Comparison Results
Understanding the Mortgage Payoff vs. Investment Decision
Deciding whether to pay down your mortgage faster or invest the extra funds is a common financial dilemma. Both strategies have potential benefits, and the "better" choice often depends on your individual circumstances, risk tolerance, and financial goals. This calculator helps you compare the potential outcomes of two scenarios:
Scenario 1: Aggressively Paying Down Your Mortgage – You take extra money and apply it directly to your mortgage principal.
Scenario 2: Investing Extra Funds – You invest the same extra amount in a diversified investment portfolio, expecting a certain rate of return.
How the Calculator Works
The calculator estimates the financial outcome of each strategy over a specified timeframe. It considers:
Mortgage Payoff Scenario: It calculates the total interest saved by making extra payments and the number of years reduced on your mortgage term. This is a guaranteed return, equal to your mortgage's interest rate, because you're saving on interest payments.
Investment Scenario: It projects the future value of your extra payments, assuming a consistent annual rate of return. This return is not guaranteed and is subject to market fluctuations.
The Math Behind the Comparison
The calculator uses standard financial formulas:
Mortgage Payoff Calculation:
The primary benefit of paying extra on your mortgage is the reduction in total interest paid over the life of the loan. While the exact calculation involves amortization schedules, a simplified way to understand the "return" is by comparing your mortgage interest rate to your potential investment rate. Paying off mortgage debt is akin to earning a risk-free return equal to your mortgage's interest rate.
Investment Growth Calculation:
This uses the future value of an ordinary annuity formula, with compounding. The formula is approximately:
FV = P * [((1 + r)^n - 1) / r]
Where:
FV is the Future Value of the investment.
P is the periodic payment (your extra monthly payment * 12 for annual).
r is the periodic interest rate (annual investment rate / 12 for monthly compounding).
n is the number of periods (investment timeframe in years * 12 for monthly compounding).
The calculator simplifies this by annualizing the extra payment and using the annual investment rate and years for a straightforward comparison.
Key Considerations:
Risk Tolerance: Paying off a mortgage offers a guaranteed "return" (interest savings) and peace of mind. Investing carries risk but offers potentially higher returns.
Interest Rates: If your expected investment return rate is consistently higher than your mortgage interest rate, investing may yield more wealth over time. Conversely, if your mortgage rate is very high, paying it off quickly can be very beneficial.
Tax Deductions: In some regions, mortgage interest may be tax-deductible. This can lower the effective cost of your mortgage, making the "return" from paying it off slightly less attractive compared to taxable investment growth. Consult a tax professional.
Liquidity: Money paid towards your mortgage principal is generally not easily accessible. Invested funds can typically be accessed, though selling investments may incur taxes and fees.
Emotional Benefit: For many, being mortgage-free provides significant psychological comfort and financial freedom.
Disclaimer:
This calculator provides estimates for illustrative purposes only. It does not constitute financial advice. Actual investment returns and mortgage interest savings may vary. Consult with a qualified financial advisor and tax professional before making any financial decisions.
function calculateComparison() {
var mortgageBalance = parseFloat(document.getElementById("mortgageBalance").value);
var mortgageInterestRate = parseFloat(document.getElementById("mortgageInterestRate").value) / 100; // Annual rate
var investmentRate = parseFloat(document.getElementById("investmentRate").value) / 100; // Annual rate
var extraPayment = parseFloat(document.getElementById("extraPayment").value); // Monthly extra payment
var timeframeYears = parseInt(document.getElementById("timeframeYears").value);
var monthlyExtraPayment = extraPayment;
var monthlyMortgageRate = mortgageInterestRate / 12;
var monthlyInvestmentRate = investmentRate / 12;
var numberOfMonths = timeframeYears * 12;
// — Mortgage Payoff Calculation —
var totalInterestPaidOnExtra = 0;
var remainingBalance = mortgageBalance;
var monthsToPayoff = 0;
var currentExtraBalance = mortgageBalance;
// Simulate paying off the mortgage with extra payments
while (currentExtraBalance > 0) {
monthsToPayoff++;
var interestForMonth = currentExtraBalance * monthlyMortgageRate;
totalInterestPaidOnExtra += interestForMonth;
var principalForMonth = monthlyExtraPayment – interestForMonth;
if (principalForMonth 3600) break; // Safety break for extremely long payoffs
}
var totalInterestSaved = totalInterestPaidOnExtra; // Simplified: the interest paid *because* of extra payments
var yearsToPayoff = Math.ceil(monthsToPayoff / 12);
// — Investment Growth Calculation —
var futureValueInvestment = 0;
if (investmentRate > 0) {
futureValueInvestment = monthlyExtraPayment * (Math.pow(1 + monthlyInvestmentRate, numberOfMonths) – 1) / monthlyInvestmentRate;
} else {
futureValueInvestment = monthlyExtraPayment * numberOfMonths; // Simple interest if rate is 0
}
var totalInvested = monthlyExtraPayment * numberOfMonths;
// — Display Results —
var mortgagePayoffResultText = "";
if (yearsToPayoff totalInterestSaved && investmentRate > mortgageInterestRate) {
recommendationText = "Based on these estimates, investing the extra funds may yield a significantly higher financial return than paying down your mortgage, assuming your expected investment returns are realized and your risk tolerance allows for market fluctuations.";
document.getElementById("result").style.borderColor = "#28a745";
document.getElementById("result").style.backgroundColor = "#e0f7f0";
} else if (totalInterestSaved > futureValueInvestment && mortgageInterestRate > investmentRate) {
recommendationText = "Paying down your mortgage offers a guaranteed return (interest savings) that appears higher than the projected investment growth in this scenario. This can provide financial security and peace of mind.";
document.getElementById("result").style.borderColor = "#dc3545";
document.getElementById("result").style.backgroundColor = "#fde0e0";
} else {
recommendationText = "The projected outcomes are very close. Consider your personal risk tolerance, desire for liquidity, and emotional comfort level when making your decision.";
document.getElementById("result").style.borderColor = "#004a99";
document.getElementById("result").style.backgroundColor = "#e0f7fa";
}
document.getElementById("mortgagePayoffResult").innerHTML = mortgagePayoffResultText;
document.getElementById("investmentGrowthResult").innerHTML = investmentGrowthResultText;
document.getElementById("finalRecommendation").innerHTML = "" + recommendationText + "";
}