Should extra cash go to my mortgage or to investments?
Compare paying the mortgage down with investing the same extra money each month, over the rest of the loan, after tax on the growth.
PAY DOWN OR INVESTPAYING DOWN COMES OUT AHEAD
$28,728
With $300,000 left at 7.00% for 25 years and $500 extra a month, paying down finishes the loan 9 years 2 months early and saves $139,558 of interest. After 25 years and 15% tax on growth, if investments earn 7.0% a year, the two end $28,728 ahead for paying down ($13,721 in today’s dollars). Investing comes out ahead only if it earns more than about 7.79% a year; paying down earns a certain 7.23% a year, the loan’s rate with monthly compounding, and investing does not.
Loan paid off
15 yr 10 mo
Interest saved
$139,558
Break-even return
7.79%
Paying down ahead by
$13,721
UNDERSTAND YOUR RESULT
Investments minus what you still owe, before tax, in future dollars
Pay downInvest
Before tax, counting what you still owe, the pay-down route is $6 ahead after one year and $9,169 ahead after 25 years. At the end the pay-down route holds $400,690 and owes nothing; the invest route holds $391,521 and owes nothing too, but has paid $139,558 more interest.
Which comes out ahead at different investment returns
| Yearly return | Pay down, after tax | Invest, after tax | Ahead |
|---|---|---|---|
| 3% | $325,966 | $210,985 | Pay down by $114,980 |
| 5% | $353,520 | $271,437 | Pay down by $82,083 |
| 7% (yours) | $384,020 | $355,293 | Pay down by $28,728 |
| 9% | $417,768 | $472,016 | Invest by $54,248 |
| 11% | $455,094 | $634,872 | Invest by $179,778 |
The two are equal at about 7.79% a year. Below it paying down wins, above it investing wins; the loan’s 7.00% rate compounded monthly is 7.23% a year, and tax on the growth pushes the break-even higher.
Year by year
| Year | Loan (pay down) | Loan (invest) | Investments (pay down) | Investments (invest) |
|---|---|---|---|---|
| 1 | $289,214 | $295,411 | $0 | $6,190 |
| 2 | $277,649 | $290,489 | $0 | $12,814 |
| 5 | $237,690 | $273,486 | $0 | $35,598 |
| 10 | $149,358 | $235,900 | $0 | $85,526 |
| 15 | $24,136 | $182,617 | $0 | $155,552 |
| 20 | $0 | $107,081 | $152,674 | $253,768 |
| 25 | $0 | $0 | $400,690 | $391,521 |
The pay-down route owes nothing from month 190; from then on $2,620 a month goes into investments.
What moves the needle
Each row re-runs the calculation with one change. Click to apply.How it's computed
FORMULA
Payment = balance × r ÷ (1 − (1 + r)^−n), with r = rate ÷ 12 and n the months left
Pay down: the extra goes to principal each month; once the loan is gone the whole payment plus the extra is invested each month
Invest: the loan runs its full term and the extra is invested each month; monthly investment rate = (1 + yearly return)^(1/12) − 1
After-tax value = investments − tax rate × (investments − what was put in)
Break-even return = the yearly return at which the two after-tax values are equal
- The two routes use the same cash every month: the $2,120 payment plus $500 extra. They are compared at the end of the 25 years left on the loan, when both owe nothing.
- Investments earn a steady 7% a year in ordinary dollars, taxed at 15% on the growth at the end. Real returns are not steady and can be negative for years; paying down earns a certain 7.23% a year, which is why the mortgage rate is compared with the return you expect.
- The mortgage interest deduction is not counted. It only helps if you itemize, and with the 2026 standard deduction ($16,100 single, $32,200 joint) many homeowners do not. If you do itemize, paying down saves less than shown.
- Liquidity is not priced. Money paid into the house is hard to get back before you sell or borrow; money invested can be sold. Many people keep an emergency fund before doing either.
- The loan is fixed-rate with no prepayment penalty, and the extra is applied to principal. Property tax, insurance, PMI and any refinancing are not modelled.
- The rate and balance shown are examples until you replace them with the figures on your mortgage statement.
WORKED EXAMPLE · SAMPLE NUMBERS
Payment: $300,000 at 7.00% for 25 years is $2,120 a month. Pay down: $2,620 a month clears the loan in 15 years 10 months, with $196,543 of interest; after that $2,620 a month is invested, reaching $400,690 ($289,558 put in), $384,020 after 15% tax on growth. Invest: $500 a month at 7.0% reaches $391,521 ($150,000 put in), $355,293 after tax, having paid $336,101 of interest.
SOURCES
[1]Weekly Primary Mortgage Market Survey (PMMS)Freddie Mac[2]Publication 936: Home Mortgage Interest DeductionInternal Revenue Service[3]Rev. Proc. 2025-32: 2026 inflation-adjusted tax items (standard deduction, capital-gains amounts)Internal Revenue Service, 2025[4]Buying a houseConsumer Financial Protection BureauHSBuilt by Hussain Sehorewala · checked against worked examples · Sep 29, 2026
Keep this number honest as your life changes.
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Questions about this result
It depends mainly on how your mortgage rate compares with what your investments earn after tax, and on how much risk you are willing to take. Paying down earns a certain return equal to your rate; investing earns more if markets cooperate and less if they do not. On the example on this page, $500 extra a month on a $300,000, 7% loan, paying down finishes the loan 9 years and 2 months early and comes out $28,728 ahead of investing at a 7% return.
A 7% mortgage compounds monthly, which is an effective 7.23% a year, so it beats a 7% investment return before tax. Tax on the investment growth widens the gap: after 15% tax on growth, investing has to earn about 7.79% a year to break even with paying down.
More than the break-even shown on this page, which is about 7.79% a year after a 15% tax on the growth for the example loan. A lower mortgage rate lowers it: at 6%, the same example has investing ahead by about $9,993 at a 7% return. In a Roth or 401(k), set the tax to 0.
Only if you itemize. The 2026 standard deduction is $16,100 for a single filer and $32,200 for a married couple filing jointly, so many homeowners no longer itemize and get no tax benefit from mortgage interest. If you do, paying down saves less than this page shows.
Money you pay into a mortgage is hard to get back without selling or borrowing; money in investments can be sold. That is a reason to hold an emergency fund and to be careful about paying a loan down with money you may need. The page does not price it.
The mortgage interest deduction, property tax and insurance, refinancing, adjustable rates, prepayment penalties and the ups and downs of investment returns. It compares two steady paths to show how the break-even works.
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