Pay Off Mortgage vs. Invest Simulator
If you have extra money each month, you basically have two options: pay off your mortgage early (pay less interest and finish sooner) or invest it (hoping for a return higher than your mortgage's interest rate). This calculator simulates both scenarios over the same time horizon and compares how much extra money you end up with in each.
How is it calculated?
Pay-off scenario: your mortgage is simulated month by month, paying the original payment plus the extra money as additional principal each month, until the loan is paid off — the benefit is the total interest you save compared to not paying anything extra. Invest scenario: the future value of investing that same extra money each month is calculated, over your mortgage's full original remaining term (without shortening it), at the expected return — the benefit is the investment's gain (final value minus what was contributed). Both benefits are in the same units and are therefore comparable: the difference is simply which of the two amounts is larger.
Examples
150,000 outstanding at 3%, 20 years remaining, 150 extra a month, expected investment return of 6%
Paying off saves 10,451.74 in interest (47 fewer months). Investing would generate 32,015.79 in gains. With these numbers, investing comes out 21,564.06 ahead.
100,000 outstanding at 8%, 15 years remaining, 200 extra a month, expected investment return of 1%
Paying off saves 22,425.73 in interest. Investing would only generate 2,809.30 in gains. Here, paying off is clearly better.