Prepay Mortgage vs Invest: Extra Payment Calculator

What does $179,759.08 saved mean?

It means $500 a month extra on a $300,000 loan at 6.5% for 30 years cuts $179,759.08 of interest off the loan and pays it off 12.50 years early — but the same $500 a month invested at 7% grows to $609,985.50, a gain of $429,985.50, which is more. The monthly payment, the interest saved, the years shaved, the investment gain and the winner are five outputs, never the same number — the payment is what you owe, the saved interest is what prepaying is worth, the years shaved are how much sooner you are free, the gain is what investing is worth, and the winner is whichever is bigger.

Three things to check before you trust the number

The interest saved is certain; the investment gain is not. Paying down a 6.5% loan is a 6.5% return, guaranteed, every month, with no risk. The 7% investment return is a guess — markets go down as well as up, and 7% a year for 30 years straight is not a promise. The calculator compares a certainty with a hope, and the hope has to beat the certainty by a lot to be worth the risk.

The return decides the winner. At a 4.2% return the investing gain is $179,667.79 and prepaying wins by $91.29; at 4.3% the gain is $186,198.13 and investing wins. The tipping point is a 4.3% return — below it, prepay; above it, invest. Check your return assumption before you trust the winner.

Taxes and liquidity change the answer. Mortgage interest may be tax-deductible, which makes prepaying worth less, and money paid into a mortgage is locked up — you cannot spend it in an emergency. Money invested is usually easier to reach. The calculator shows the raw numbers; your tax and your emergency fund decide the rest.

Worked example

On the defaults: $300,000 at 6.5% for 30 years, $500 a month extra, a 7% investment return.

1. Monthly payment: $300,000 × (0.005417 × 1.005417^360) ÷ (1.005417^360 − 1) = $1,896.20.
2. Baseline interest: $1,896.20 × 360 − $300,000 = $382,633.47 (unrounded 382633.465372).
3. Payoff with $500 extra: paying $2,396.20 a month, month by month, the balance reaches zero in 210 months.
4. Interest with extra: the sum of the monthly interest in that simulation is $202,874.38 (unrounded 202874.381368).
5. Interest saved: $382,633.47 − $202,874.38 = $179,759.08 (unrounded 179759.084004).
6. Years shaved: (360 − 210) ÷ 12 = 12.50 years.
7. Investing future value: $500 a month at 7% a year for 360 months grows to $609,985.50 (unrounded 609985.497888).
8. Investment gain: $609,985.50 − ($500 × 360) = $609,985.50 − $180,000 = $429,985.50.
9. Winner: $429,985.50 is more than $179,759.08, so Investing wins.
10. Smallest extra for $100,000 of interest saved: $191 — at $191 the interest saved is $100,147.65, and at $190 it is $99,774.41.

Every branch, checked

• Extra $250 a month: Extra $250 a month: Interest saved $120,336.94; years shaved 8.17; investment gain $214,992.75; investing wins. A smaller extra — interest saved $120,336.94, 98 months shaved, investing gains $214,992.75.
• Extra $1,000 a month: Extra $1,000 a month: Interest saved $241,162.07; years shaved 17.25; investment gain $859,971.00; investing wins. A bigger extra — interest saved $241,162.07, 207 months shaved, investing gains $859,971.00.
• 5% investment return: 5% investment return: Interest saved $179,759.08; years shaved 12.50; investment gain $236,129.32; investing wins. A 5% return — interest saved $179,759.08, investing gains $236,129.32, investing wins.
• 10% investment return: 10% investment return: Interest saved $179,759.08; years shaved 12.50; investment gain $950,243.96; investing wins. A 10% return — interest saved $179,759.08, investing gains $950,243.96, investing wins.
• 4% mortgage rate: 4% mortgage rate: Interest saved $92,414.31; years shaved 11.67; investment gain $429,985.50; investing wins. A cheap mortgage — payment $1,432.25, interest saved $92,414.31, 140 months shaved.
• 9% mortgage rate: 9% mortgage rate: Interest saved $292,165.27; years shaved 13.50; investment gain $429,985.50; investing wins. An expensive mortgage — payment $2,413.87, interest saved $292,165.27, 162 months shaved.
• $200,000 loan balance: $200,000 loan balance: Interest saved $144,148.44; years shaved 15.25; investment gain $429,985.50; investing wins. A smaller loan — payment $1,264.14, interest saved $144,148.44, 183 months shaved.
• $500,000 loan balance: $500,000 loan balance: Interest saved $225,191.94; years shaved 9.17; investment gain $429,985.50; investing wins. A bigger loan — payment $3,160.34, interest saved $225,191.94, 110 months shaved.
• 20-year term: 20-year term: Interest saved $80,432.78; years shaved 6.08; investment gain $140,463.33; investing wins. A shorter term — payment $2,236.72, interest saved $80,432.78, 73 months shaved.
• Extra $750 a month: Extra $750 a month: Interest saved $216,222.66; years shaved 15.25; investment gain $644,978.25; investing wins. A $750 extra — interest saved $216,222.66, 183 months shaved, investing gains $644,978.25.

The reverses, worked backwards

• Smallest extra monthly payment for the interest saved to REACH at least $100,000: $191 a month — at $191 a month the figures are Interest saved $100,147.65 (unrounded 100147.653609); years shaved 6.67; investment gain $164,254.46 (unrounded 164254.460193); investing wins; at the lower neighbor the figures are Interest saved $99,774.41 (unrounded 99774.411141); years shaved 6.67; investment gain $163,394.49 (unrounded 163394.489197); investing wins; at the upper neighbor the figures are Interest saved $100,518.22 (unrounded 100518.221912); years shaved 6.75; investment gain $165,114.43 (unrounded 165114.431189); investing wins — verdict: STEP.
• Smallest extra monthly payment for the payoff to be 240 months or less: $341 a month — at $341 a month the figures are Interest saved $145,942.18 (unrounded 145942.177794); years shaved 10.00; investment gain $293,250.11 (unrounded 293250.109560); investing wins; at the lower neighbor the figures are Interest saved $145,690.39 (unrounded 145690.387902); years shaved 9.92; investment gain $292,390.14 (unrounded 292390.138564); investing wins; at the upper neighbor the figures are Interest saved $146,192.60 (unrounded 146192.598724); years shaved 10.00; investment gain $294,110.08 (unrounded 294110.080555); investing wins — verdict: STEP.
• Smallest investment return for investing to BEAT prepaying (extra $500): 4.3% return — at 4.3% return the figures are Interest saved $179,759.08 (unrounded 179759.084004); years shaved 12.50; investment gain $186,198.13 (unrounded 186198.129935); investing wins; at the lower neighbor the figures are Interest saved $179,759.08 (unrounded 179759.084004); years shaved 12.50; investment gain $179,667.79 (unrounded 179667.792578); prepaying wins; at the upper neighbor the figures are Interest saved $179,759.08 (unrounded 179759.084004); years shaved 12.50; investment gain $192,872.08 (unrounded 192872.083713); investing wins — verdict: STEP.
• Smallest mortgage rate for prepaying to BEAT investing (return 7%): 11.53% mortgage rate — at 11.53% mortgage rate the figures are Interest saved $430,014.86 (unrounded 430014.861302); years shaved 14.58; investment gain $429,985.50 (unrounded 429985.497888); prepaying wins; at the lower neighbor the figures are Interest saved $429,427.05 (unrounded 429427.052884); years shaved 14.58; investment gain $429,985.50 (unrounded 429985.497888); investing wins; at the upper neighbor the figures are Interest saved $430,603.08 (unrounded 430603.083737); years shaved 14.58; investment gain $429,985.50 (unrounded 429985.497888); prepaying wins — verdict: STEP.
• Smallest extra monthly payment for the interest saved to REACH at least $150,000: $358 a month — at $358 a month the figures are Interest saved $150,134.09 (unrounded 150134.093952); years shaved 10.25; investment gain $307,869.62 (unrounded 307869.616488); investing wins; at the lower neighbor the figures are Interest saved $149,891.52 (unrounded 149891.524592); years shaved 10.25; investment gain $307,009.65 (unrounded 307009.645492); investing wins; at the upper neighbor the figures are Interest saved $150,376.66 (unrounded 150376.663312); years shaved 10.25; investment gain $308,729.59 (unrounded 308729.587484); investing wins — verdict: STEP.
• Smallest investment return for investing to BEAT prepaying (extra $200): 5.3% return — at 5.3% return the figures are Interest saved $103,448.79 (unrounded 103448.794258); years shaved 6.92; investment gain $103,997.49 (unrounded 103997.487736); investing wins; at the lower neighbor the figures are Interest saved $103,448.79 (unrounded 103448.794258); years shaved 6.92; investment gain $100,745.07 (unrounded 100745.065050); prepaying wins; at the upper neighbor the figures are Interest saved $103,448.79 (unrounded 103448.794258); years shaved 6.92; investment gain $107,322.68 (unrounded 107322.675512); investing wins — verdict: STEP.

What the defaults assume

The defaults are $300,000 at 6.5% for 30 years, $500 a month extra and a 7% investment return — a typical first mortgage and a typical long-run stock market return. They are a starting point, not a benchmark: your loan, your rate, your extra and your return are your own, and the right answer for you is the one your numbers give. Change the five numbers to your own and the calculator recomputes instantly. The interest saved is a guaranteed return — paying down a 6.5% loan is a 6.5% return, certain — and the investment gain is a guess, 7% a year, every year, for 30 years.

These notes repeat in every explainer section because this page is built to be read start to finish: the defaults are one loan, not a standard; the interest saved is certain and the investment gain is not; the return decides the winner; and taxes and liquidity change the answer.

Output · formula · meaning

Who uses this

• A homeowner with $500 a month spare who wants to know whether it belongs in the mortgage or in the market.
• A homeowner near retirement who wants the loan gone before the paycheques stop — 12.50 years early is a real date.
• An investor who wants the number behind the “invest the difference” advice — $429,985.50 on the defaults.
• A first-time buyer who wants to see what an extra payment does before committing to one.

Accuracy & limitations

The calculator does the arithmetic exactly — the payment comes from the standard amortization formula, the payoff and the interest with extra come from a month-by-month simulation, and the investing future value comes from monthly compounding at the return you enter — and every figure on this page is checked against an independent model, and the payment and baseline interest match the amortization-calculator page exactly. What it cannot do is predict the market: the 7% return is an assumption, not a promise, and a lower return flips the winner. It also ignores taxes — mortgage interest may be deductible and investment gains may be taxed — and it assumes the extra payment and the return stay constant for the whole horizon. And the interest saved is $179,759.08 unrounded 179759.084004 on the defaults — the page prints the unrounded figure so the rounding does not mislead you.

Cite this calculator

Monthly payment = balance × (monthly rate × (1 + monthly rate)^months) / ((1 + monthly rate)^months − 1); each month the interest is the balance × the monthly rate and the rest of the payment cuts the balance. On the defaults — $300,000 at 6.5% for 30 years, $500 a month extra, a 7% investment return — the monthly payment is $1,896.20, the baseline interest is $382,633.47, the payoff with extra is 210 months, the interest with extra is $202,874.38, the interest saved is $179,759.08, the years shaved are 12.50, the investing future value is $609,985.50, the investment gain is $429,985.50 and the winner is Investing wins. Smallest extra monthly payment for $100,000 of interest saved: $191. Smallest extra monthly payment for a payoff of 240 months or less: $341. Smallest investment return for investing to beat prepaying (extra $500): 4.3%. Smallest mortgage rate for prepaying to beat investing (return 7%): 11.53%. Smallest extra monthly payment for $150,000 of interest saved: $358. Smallest investment return for investing to beat prepaying (extra $200): 5.3%. Source: Bright Side Kit, brightoolbox.com.

Frequently asked questions