Mortgage Prepayment Strategy Calculator
Determine whether making extra mortgage payments or investing that money elsewhere produces a better financial outcome. Use it when you have discretionary cash and want to optimize your long-term net worth.
About this calculator
Every extra dollar paid toward a mortgage saves interest at the mortgage rate, effectively earning a guaranteed, tax-adjusted return. Alternatively, that dollar invested could compound at an expected market return. This calculator amortizes your remaining mortgage with extra monthly payments, summing total interest paid, then computes interest savings versus the no-prepayment baseline: interestSavings = totalRegularInterest − totalPrepayInterest. It also calculates the future value of those same extra payments invested monthly using FV = extraPayment × [(1 + r)^n − 1] / r, where r is the monthly investment return and n is the original remaining months. The net advantage is: interestSavings − (investmentFV − extraPayment × months). A positive result favors prepayment; negative favors investing.
How to use
Suppose you owe $250,000 at 6.5% with 20 years remaining and can put an extra $300/month toward either the mortgage or investments returning 8% annually. Regular total interest over 240 months ≈ $231,000. With $300 extra monthly, the loan pays off roughly 5 years early, saving about $62,000 in interest. The same $300/month invested at 8%/12 monthly for 240 months grows to ≈ $178,000; subtracting contributions of $72,000 gives an investment gain of $106,000. Net advantage of investing: $106,000 − $62,000 = $44,000, suggesting investing edges out prepayment in this scenario.
Frequently asked questions
When does prepaying a mortgage beat investing in the stock market?
Prepayment beats investing when your mortgage rate exceeds your expected after-tax investment return. For example, if your mortgage is 7% and you expect a 7% nominal market return, the guaranteed mortgage savings (no sequence-of-returns risk) is often the better choice on a risk-adjusted basis. The calculus shifts toward investing when mortgage rates are low (3%–4%) and expected equity returns are higher (7%–10%). Tax deductibility of mortgage interest slightly reduces the effective cost of the mortgage, while taxable investment accounts reduce the net investment return — both factors worth modeling.
How does making one extra mortgage payment per year affect payoff time?
One extra payment per year applied entirely to principal is equivalent to making 13 monthly payments instead of 12. On a typical 30-year mortgage, this strategy pays off the loan roughly 4–5 years early and saves tens of thousands of dollars in interest, depending on the balance and rate. The savings are front-loaded because reducing the principal early eliminates interest that would have compounded over the remaining life of the loan. You can achieve the same effect by dividing your monthly payment by 12 and adding that amount to each monthly payment throughout the year.
What is the break-even investment return that makes prepaying a mortgage neutral?
The break-even point is the investment return rate at which the future value of invested extra payments exactly equals the interest savings from prepayment. Mathematically, it is close to your mortgage interest rate adjusted for taxes — if your mortgage rate is 6.5% and you can deduct interest, the break-even investment return might be around 6%–7% pre-tax. Any expected investment return above that rate favors investing; below it favors prepayment. This calculator shows the net dollar difference, so you can see how sensitive the decision is to your assumed investment return.