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Choosing where an extra 500 goes
Start with a 320,000 mortgage balance at 5.5% with 25 years remaining. Compare paying an extra 500 each month with investing it at a modeled 7% return and a 0.2% annual fund fee.
Remaining mortgage balance: 25% lower
Change remaining mortgage balance to 240,000 while keeping the other example values the same.
Remaining mortgage balance: 25% higher
Change remaining mortgage balance to 400,000 while keeping the other example values the same.
Interactive chart
See what changes the result
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Projection over time
How the result develops
This extends the calculator’s current assumptions across time. It is an illustration, not a prediction.
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Quick answer
What does the Mortgage vs index investing calculate?
Should extra monthly funds repay the mortgage or go into an index fund? This calculator uses remaining mortgage balance, mortgage interest rate, mortgage term remaining, extra funds each month, expected index fund return, and annual fund fee to estimate use the same extra money two ways immediately in your browser.
With the values currently entered, the result is $42,630.57 — estimated advantage for index investing. It also shows mortgage-first net position, invest-first net position, mortgage paid off with extra, mortgage interest avoided, scheduled mortgage payment, and net modeled investment return.
How to use the Mortgage vs index investing
- Replace the example values with your own numbers.
- Review the result and supporting figures as they update automatically.
- Check the formula and assumptions before using the estimate for a decision.
Inputs used
- Remaining mortgage balance
- Mortgage interest rate — entered in %
- Mortgage term remaining — entered in years
- Extra funds each month
- Expected index fund return — entered in %
- Annual fund fee — entered in %
Mortgage vs index investing formula
Compare investments minus mortgage balance each month using the same total cash flow
Assumptions
- The mortgage rate stays fixed, extra payments reach principal, and there is no prepayment penalty.
- The index fund earns one smooth annual return after the entered fund fee; real returns will vary.
- Taxes, mortgage-interest deductions, home value, and liquidity are excluded.
Verify the inputs
Authoritative sources
These sources explain the definitions, factors, or rules behind this tool. Their geographic scope is shown because an official source for one country is not automatically valid somewhere else.
Definitions and disclosure rules for APR, mortgages, credit cards, and consumer loans.
Mortgage servicing and extra principal paymentsUS Consumer Financial Protection BureauScope: US mortgage servicing; method is generalExplains how extra principal payments may shorten repayment and reduce interest, and why borrowers should confirm how the servicer applies them.
Index fundsInvestor.gov — US Securities and Exchange CommissionScope: General investor education; US sourceExplains index-fund objectives, fees, tracking differences, and investment risk.
Understanding feesInvestor.gov — US Securities and Exchange CommissionScope: General investor education; US sourceExamples and guidance showing how ongoing percentage fees can reduce a portfolio over time.
Sources do not endorse Calculum. Check the source date, scope, and your own documents before making a financial, tax, insurance, or reporting decision.
Practical guide
Mortgage vs index investing example and edge cases
Extra mortgage payments buy a predictable interest saving. Index investing keeps the money liquid and may grow faster, but the return is uncertain.
Example: Choosing where an extra 500 goes
Start with a 320,000 mortgage balance at 5.5% with 25 years remaining. Compare paying an extra 500 each month with investing it at a modeled 7% return and a 0.2% annual fund fee.
- Remaining mortgage balance
- 320,000
- Mortgage interest rate
- 5.5 %
- Mortgage term remaining
- 25 years
- Extra funds each month
- 500
- Expected index fund return
- 7 %
- Annual fund fee
- 0.2 %
Calculated result$42,630.57estimated advantage for index investing
The result is the modeled difference at the original mortgage maturity. Use a lower investment return to see whether the choice still holds up.
Example results use the default display profile. The calculator above follows your selected country and units.
How to read the result
- Both strategies use the same monthly cash. After the mortgage-first strategy pays off the loan, it invests the entire former mortgage payment for the remaining months.
- The net-position lines subtract the remaining mortgage from modeled investments. Home value is excluded because it is the same under both strategies.
Edge cases worth checking
You need the money before the mortgage ends
Mortgage overpayments are difficult to reverse. Keep an emergency fund and near-term spending outside this comparison.
Tax or a prepayment penalty applies
Reduce the investment-return assumption for taxes and account costs, and confirm the lender’s penalty and principal-payment rules before deciding.
What changes the result most
Remaining mortgage balance
Use a current amount for remaining mortgage balance. Include fees or recurring costs that belong in the same figure.
Mortgage interest rate
Test a lower and higher mortgage interest rate. A small percentage change can move the final result more than expected.
Mortgage term remaining
Keep mortgage term remaining on the same time basis as the other inputs. Monthly and annual values are easy to mix up.
Try a different scenario
Small changes show whether the answer is stable or sensitive.
Remaining mortgage balance: 25% lower
240,000$39,071.96estimated advantage for index investing
Remaining mortgage balance: 25% higher
400,000$45,114.64estimated advantage for index investing
Mortgage interest rate: 25% higher
6.875 %$11,740.79estimated advantage for mortgage overpayment
Common mistakes
Check remaining mortgage balance
The mortgage rate stays fixed, extra payments reach principal, and there is no prepayment penalty. Make sure this matches the number you enter.
Keep annual fund fee consistent
The index fund earns one smooth annual return after the entered fund fee; real returns will vary. Use the same units and time period throughout the calculation.
Do not rely on one mortgage vs index investing scenario
Run a cautious case and an optimistic case. The range is often more useful than one exact-looking number.
Use this result well
Should extra monthly funds repay the mortgage or go into an index fund?
It cannot replace a lender quote, lease, survey, or purchase contract.