Deciding whether to pay off your mortgage early or invest extra funds can significantly impact your long-term financial health. This calculator helps you compare the potential financial benefits of both strategies based on your specific situation.
Understanding Your Options: Pay Off House vs. Invest
The choice between aggressively paying down your mortgage and investing extra money is a common financial dilemma. Both strategies have merits, and the "best" option often depends on individual circumstances, risk tolerance, and financial goals.
Paying Off Your Mortgage Early
When you make extra payments on your mortgage, you reduce the principal balance faster. This leads to:
Guaranteed Return: The "return" on paying off your mortgage is the interest you save. This is a guaranteed, risk-free return equal to your mortgage interest rate.
Reduced Debt: Becoming debt-free, especially from your largest debt, can provide significant psychological relief and financial freedom.
Lower Monthly Expenses: Once the mortgage is paid off, your largest monthly expense is eliminated, freeing up cash flow for other goals.
Increased Equity: You build equity in your home faster.
However, money tied up in your home equity is not easily accessible without refinancing or selling, and the guaranteed return might be lower than potential investment returns.
Investing Your Extra Funds
Investing your extra money, typically in diversified portfolios of stocks, bonds, or other assets, offers:
Higher Potential Returns: Historically, the stock market has offered higher average annual returns than typical mortgage interest rates over the long term.
Liquidity: Investments are generally more liquid than home equity, meaning you can access your funds more easily if needed (though selling investments might incur taxes or fees).
Diversification: Investing allows you to diversify your assets beyond your home, which is often your largest single asset.
Inflation Hedge: Well-chosen investments can grow faster than inflation, preserving your purchasing power.
The downside is that investment returns are not guaranteed and come with market risk. You could lose money, especially in the short term.
How This Calculator Helps
This calculator compares the total interest you would save by paying off your mortgage early versus the potential future value of investing that same extra monthly amount over the same period. It helps you visualize the financial impact of each decision.
Current Mortgage Balance: The outstanding amount you owe on your home loan.
Current Mortgage Interest Rate: The annual interest rate on your existing mortgage. This is your guaranteed return if you pay off early.
Remaining Mortgage Term (Years): How many years are left on your current mortgage schedule.
Extra Monthly Payment Towards Mortgage: The additional amount you are considering paying each month. This is the amount that will either accelerate your mortgage payoff or be invested.
Expected Annual Investment Return Rate: The average annual return you anticipate from your investments. Be realistic and consider historical averages for diversified portfolios.
By inputting these figures, the calculator will show you the financial outcome of each path, empowering you to make an informed decision tailored to your financial situation and risk tolerance.
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function calculatePayoffOrInvest() {
// Get input values
var mortgageBalance = parseFloat(document.getElementById("mortgageBalance").value);
var mortgageRate = parseFloat(document.getElementById("mortgageRate").value);
var remainingTermYears = parseFloat(document.getElementById("remainingTermYears").value);
var extraPayment = parseFloat(document.getElementById("extraPayment").value);
var investmentReturnRate = parseFloat(document.getElementById("investmentReturnRate").value);
var resultDiv = document.getElementById("result");
resultDiv.innerHTML = ""; // Clear previous results
// Input validation
if (isNaN(mortgageBalance) || mortgageBalance <= 0) {
resultDiv.innerHTML = "Please enter a valid Current Mortgage Balance (must be positive).";
return;
}
if (isNaN(mortgageRate) || mortgageRate < 0) {
resultDiv.innerHTML = "Please enter a valid Current Mortgage Interest Rate (0 or more).";
return;
}
if (isNaN(remainingTermYears) || remainingTermYears <= 0) {
resultDiv.innerHTML = "Please enter a valid Remaining Mortgage Term (must be positive).";
return;
}
if (isNaN(extraPayment) || extraPayment < 0) {
resultDiv.innerHTML = "Please enter a valid Extra Monthly Payment (0 or more).";
return;
}
if (isNaN(investmentReturnRate) || investmentReturnRate 0) {
if (r_mortgage_monthly === 0) {
n_early_months = mortgageBalance / newMonthlyPayment;
} else {
// Check if the new payment is enough to cover interest + principal
if (newMonthlyPayment 0) {
if (r_investment_monthly === 0) {
futureValueInvestment = extraPayment * n_investment_months;
} else {
futureValueInvestment = extraPayment * ((Math.pow(1 + r_investment_monthly, n_investment_months) – 1) / r_investment_monthly);
}
}
// Display Results
var output = "
";
output += "With an extra $" + extraPayment.toFixed(2) + " per month, you would pay off your mortgage in approximately " + (n_early_months / 12).toFixed(1) + " years (originally " + remainingTermYears + " years).";
output += "This means you would save approximately $" + interestSaved.toFixed(2) + " in mortgage interest.";
output += "You would pay off your mortgage approximately " + yearsSaved.toFixed(1) + " years earlier.";
output += "
Scenario 2: Invest the Extra Money
";
output += "If you invested the extra $" + extraPayment.toFixed(2) + " per month for the same period (approximately " + (n_early_months / 12).toFixed(1) + " years) at an expected annual return of " + investmentReturnRate.toFixed(2) + "%, your investment could grow to approximately $" + futureValueInvestment.toFixed(2) + ".";
output += "
Conclusion:
";
if (futureValueInvestment > interestSaved) {
output += "Based on these figures, investing your extra funds could potentially yield a higher financial benefit of $" + (futureValueInvestment – interestSaved).toFixed(2) + " compared to paying off your mortgage early.";
} else if (interestSaved > futureValueInvestment) {
output += "Based on these figures, paying off your mortgage early could potentially save you more in interest by $" + (interestSaved – futureValueInvestment).toFixed(2) + " compared to investing your extra funds.";
} else {
output += "The financial benefits of both options are approximately equal based on these figures.";
}
output += "Remember, paying off your mortgage offers a guaranteed return (interest saved), while investment returns are not guaranteed and involve risk.";
} else {
output += "To compare, please enter an 'Extra Monthly Payment Towards Mortgage' greater than zero.";
}
resultDiv.innerHTML = output;
}