Mortgage Overpayment vs Invest Calculator

Mortgage overpayment vs investing comes down to rate vs expected investment return. If mortgage rate (after tax benefits) exceeds expected investment return, overpay wins. If investment return higher, invest. Risk-adjusted comparison matters too — mortgage overpayment carries less uncertainty.

What the result means

Better option for the inputs. Real-world consideration: mortgage overpayment certain return, investment return uncertain. Risk-adjusted, mortgage often wins even at slightly lower 'return'.

Run it with sensible defaults

Using mortgage rate of 5%, expected investment return of 7%, monthly extra amount of 300, time horizon of 15, the calculation works out to Invest. The defaults are meant as a starting point, not a recommendation.

The levers in this calculation

The inputs — Mortgage Rate, Expected Investment Return, Monthly Extra Amount, and Time Horizon — do not pull with equal force. The rate and the time horizon usually dominate — compounding means a small change in either reshapes the final figure more than a similar shift in contribution size. Test this by doubling one input at a time.

How the math works

Each side is a future value of a monthly annuity. The monthly amount is compounded at its own rate over the horizon: the overpayment side at the mortgage rate (the interest avoided), the investment side at the expected return. The two totals are then compared, and the higher one is named as the better option for the inputs. Because both sides use the same contribution and horizon, the winner is whichever rate is higher.

Why this matters

The choice between overpaying a mortgage and investing the same money usually turns on a single number: the gap between the mortgage rate and the expected investment return. A spread of two or three percentage points, compounded over fifteen years, can amount to tens of thousands. Seeing the two totals side by side shows how sensitive the outcome is to that spread and to the horizon.

What this doesn't capture

This is a rate-and-compounding comparison, not a full mortgage model. It does not ask for the loan balance or remaining term, so it assumes the mortgage is large enough and runs long enough to absorb every overpayment across the horizon. If the loan would clear before the horizon ends, the overpayment figure is overstated, because later payments would have no balance left to reduce. The comparison also leaves out tax on investment returns, the volatility of real investments (the expected return is treated as smooth), transaction costs, and inflation.