Mortgage Payoff Vs. Investing: Which Strategy Builds More Wealth?
Should You Pay Cash for a House or Invest the Difference?
One of the most debated questions in personal finance is whether you should use extra cash to pay down your mortgage early or invest that money in the stock market. With mortgage rates fluctuating and market returns uncertain, the “right” answer depends on more than just your interest rate—it depends on taxes, loan terms, and your long-term investment goals.
Our Mortgage Payoff vs. Invest Calculator is designed to give you a definitive answer by running a side-by-side simulation of your net worth over the life of your loan.
This calculator is in BETA – please report any bugs, issues or feedback to scott@biggerpocketsmoney.com
How to Decide: Pay Down Debt or Buy Assets?
1. The “Guaranteed Return” of Debt
When you make an extra payment on your mortgage, you are essentially “earning” a guaranteed return equal to your interest rate. If your mortgage rate is 7%, every extra dollar you pay saves you 7% in interest costs. In a volatile market, a guaranteed 7% return is often highly attractive.
2. The Power of Compounding Returns
Conversely, if you expect the stock market to return 8-10% over the long term, investing the cash might leave you with a larger portfolio, even after paying your mortgage interest. This calculator helps you visualize the “Opportunity Cost” of choosing one path over the other.
3. The Tax Deduction Factor
The “true” cost of your mortgage is often lower than the sticker rate if you itemize your deductions. Our tool automatically calculates the Mortgage Interest Deduction based on your filing status and income, showing you how tax savings might actually make it more profitable to keep your mortgage and invest the difference.
Using the Calculator
To get the most accurate projection, ensure you have the following details ready:
- Current Loan Balance & Rate: Check your latest mortgage statement.
- Marginal Tax Rate: Your top tax bracket significantly impacts your itemized deductions.
- Expected Investment Return: While 7-10% is a common benchmark for the S&P 500, you can adjust this based on your specific risk tolerance.
- Lump Sums: Are you expecting a bonus or inheritance? You can model how a one-time large payment affects your “Years to Debt-Free” status.
Frequently Asked Questions
Is it ever a bad idea to pay off a mortgage early?
If your mortgage rate is very low (e.g., 3%) and you can earn 5% in a high-yield savings account or 8% in the market, you may be better off investing. Additionally, liquidity is a factor—money sent to the bank is “locked” in home equity, while invested funds are usually easier to access in an emergency.
How does an Adjustable Rate Mortgage (ARM) affect the math?
An ARM can drastically change the calculation once the fixed period ends. Our tool allows you to simulate a “future rate” to see if a spike in interest costs makes early payoff a more urgent priority.
Does paying off my mortgage early save me money on taxes?
Actually, paying off your mortgage early reduces your tax deduction. However, for most homeowners who take the standard deduction, this won’t change their tax bill. Our calculator checks your specific numbers to see if you are actually receiving a tax benefit from your mortgage interest.Should You Buy a
Unlike simple premium comparison tools, this health insurance calculator utilizes Expected Value (EV) analysis. EV is a concept used by professional investors to determine the average outcome of a series of events.
We model three distinct years for your health profile:
- Routine Year: Checkups, minor prescriptions, and the occasional sick visit.
- Challenging Year: A broken bone, a kidney stone, or a minor surgery.
- Catastrophic Year: A major diagnosis (Cancer, Heart Attack) or severe accident.
By weighting the costs of these years by their probability (based on CDC and actuarial data), we calculate a single dollar amount that represents your “True Risk Cost.”
2025 Alerts: The Subsidy Cliff & Silver Loading
The Subsidy Cliff
The enhanced premium tax credits (subsidies) provided by the Inflation Reduction Act are currently scheduled to expire at the end of 2025.
- What this means: If you are currently receiving a subsidy, your premiums could double or triple starting in 2026 unless Congress acts. Our calculator includes a “Cliff Analysis” feature to show you how your financial equation changes if these subsidies disappear.
Silver Loading
In states like Texas, Pennsylvania, and Utah, insurers use a pricing strategy called “Silver Loading.” This makes Silver plans artificially expensive to maximize federal subsidies.
- The Hack: In these states, you can often apply your inflated subsidy to a Gold Plan, sometimes getting a Gold plan for less than the cost of a Silver plan. Our calculator automatically detects your state’s pricing pricing trends to highlight these opportunities.
State Penalties for Being Uninsured
While the federal tax penalty for not having insurance was reduced to $0 years ago, several states have enacted their own “Individual Mandates.” If you choose a Healthshare (which is not insurance) or go uninsured in these states, you may owe a tax penalty:
- California: Minimum $900/adult or 2.5% of income.
- Massachusetts: Up to ~$183/month based on income.
- New Jersey: Modeled on the old federal mandate.
- Rhode Island: Flat fee or percentage of income.
- District of Columbia: Indexed to inflation.
This calculator automatically estimates your potential penalty based on your location and income.
What I am doing Personally:
Faced with a high health insurance cost estimate this year, I decided to join a healthshare program – the first time I have been without traditional health insurance in my life.
I was, and am, uncomfortable with that choice.
I am sure many millions of other people are or will be uncomfortable as well. I think that if you join me and participate in a healthshare, you should be as uncomfortable as I am with it.
However, math is math. Running the numbers helped me feel *less uncomfortable* with my choice, and that’s why I built this healthcare cost calculator.
For my healthy family, the costs of paying full premiums to participate in an ACA health insurance program just doesn’t make sense. Even if I assume that a healthshare is 2-3X less likely to share expenses during a major healthcare event than a traditional insurer, it’s SO much cheaper for me from an expected value perspective that I had to make the switch for me and my family.
This math is likely to be even more extreme for friends in states that have much higher average premiums.
Please feel free to use the health insurance calculator calculator above to take the first steps in making the decision that is right for you. Note that the calculator uses estimates, and that your numbers will vary once you shop healthshares, or ACA plans.
The app does not store your data in any kind of backend. You are, of course, invited to join our email list, but email address is not required.
As always, we will continually work to provide resources for the Financial Independence / Retire Early (FIRE) community here at BiggerPockets Money. Some of those other resources can be found at our blog, our resource library, and with our home finance and mortgage payoff calculators.
Thanks for coming to our site. I look forward to your feedback!
-Scott Trench
Scott@biggerpocketsmoney.com