Mortgage vs Cash Purchase Calculator
Compare the true cost of financing a home with a mortgage against paying all cash, factoring in investment opportunity cost and tax savings. Ideal for buyers deciding how to deploy capital when purchasing real estate.
Last updated: September 2026
Formula below · 2 sources (CFPB, Wikipedia) · Updated Sep 2026
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About this calculator
This calculator compares two buyers with the same money. The cash buyer pays the full price today. The mortgage buyer pays only the down payment, invests the rest (the loan amount) at your alternative investment return, and makes the monthly mortgage payment. To keep the comparison fair, the cash buyer invests the same monthly amount the mortgage buyer spends on the loan, after the tax saving from deducting the interest (payment − interest × your marginal tax rate). Both own the same house, so after the analysis period the difference is: Cash Purchase Advantage = cash buyer's investment account − (mortgage buyer's investment account − remaining loan balance). A positive result means paying cash leaves you wealthier; a negative result means the mortgage strategy wins. The payment is the standard 30-year amortizing payment, M = L × [r(1+r)ⁿ] / [(1+r)ⁿ − 1]; investment returns compound monthly at the equivalent of the annual rate you enter. Roughly, the mortgage wins when your after-tax investment return beats the after-tax mortgage rate. The model assumes all interest is deductible at your marginal rate (true only if you itemize; enter 0 if you take the standard deduction) and ignores taxes on investment gains and investment risk, both of which favor paying cash.
How to use
Suppose a $400,000 home, 20% down ($80,000), a 7% mortgage rate, an 8% alternative investment return, a 25% tax rate, over 10 years. Loan = $320,000; monthly payment ≈ $2,129. The mortgage buyer invests the $320,000 at 8%, which grows to about $690,856, and still owes about $274,600 after 10 years, a net of about $416,256. The cash buyer invests the after-tax mortgage payment each month (about $1,600 at first, rising as the interest share falls), which grows to about $303,904. Result ≈ −$112,353: the mortgage strategy comes out about $112,000 ahead because 8% is well above the after-tax mortgage rate. With an investment return equal to the mortgage rate and no tax deduction (6% and 6%, tax 0), the two come out close: cash is about $6,400 ahead, because the mortgage compounds monthly while the 6% return is an annual rate.
Frequently asked questions
When does it make more financial sense to pay cash instead of getting a mortgage?
Paying cash is generally advantageous when your alternative investment return is lower than your after-tax mortgage rate. For example, if your mortgage rate is 7% and you only expect a 5% return on investments, the cost of carrying debt exceeds your investment gains. Cash purchases also eliminate monthly payment obligations, reduce risk in volatile markets, and can make offers more competitive. However, this only holds if you have sufficient liquidity after the purchase — depleting all savings to buy cash can create financial vulnerability.
How does the mortgage interest tax deduction affect the mortgage vs cash comparison?
The mortgage interest deduction reduces the effective cost of borrowing by allowing you to deduct interest paid from your taxable income, lowering your tax bill. If you're in a 25% tax bracket and paid $10,000 in mortgage interest, your real after-tax cost is only $7,500. This deduction is most valuable in the early years of a mortgage when interest payments are highest. Note that since the 2017 Tax Cuts and Jobs Act, the standard deduction increased significantly, so only taxpayers who itemize actually benefit — meaning the deduction's value depends on your overall tax situation.
What investment return rate should I use when comparing mortgage to cash purchase?
Use the long-term expected return of whatever you would actually invest the cash in. The S&P 500 has historically returned roughly 7–10% annually before inflation. If you'd invest conservatively in bonds or CDs, use a lower figure of 3–5%. The key is to be realistic and consistent — overestimating investment returns will make the mortgage option look unfairly better. Also consider that investment returns are uncertain and taxable, while mortgage interest savings are more predictable, so some financial planners recommend using a risk-adjusted, after-tax return rate.