Pay off the mortgage early, or invest the money?
Paying the mortgage down is a guaranteed 6.25%. The market probably beats it. Probably is the entire question, and it is the part every blog post skips. This template runs both paths over the years you actually have left and shows you the odds, the median gap, and the size of the loss when investing is the wrong call.
Personal Finance Intermediate Monte Carlo Pro engine
After you install, this is the model to open.
Pay Off the Mortgage Early or Invest the Money?
- In your spreadsheet, click the Sortia icon in the strip of icons down the right-hand edge. No strip? Click the arrow at the bottom-right to open it. You can also use Extensions, then Sortia, then Open Sortia.
- Click Start from a template and put that name in the search box.
- Pick the card with that name and click Load this template. It arrives on a new tab with real numbers already in it.
This one runs on a Pro engine, and every free install includes five full-quality runs on your own numbers, shared across all five Pro engines rather than five for each. After that, Pro is $199/year.
The answer
At the most likely returns the invest path ends with $730,639 against $620,460, a gap of $110,179. Across thousands of runs:
- Investing wins
- 84% of 22-year runs
- Median gap
- +$84,500 in favor of investing
- P5 (bad market)
- -$40,200 investing loses this much
- P95 (good market)
- +$283,600
Investing wins about 84% of the time and the median run ends about $84,500 ahead, so the expected-value argument holds. The number nobody shows you is the other tail: in the worst 5% of runs investing ends about $40,200 behind. That is the whole case for paying the mortgage down, because the 6.25% is certain and the market is not. Two limits stated up front: this is all pre-tax, with no mortgage interest deduction and no capital gains tax, and the horizon is split into an early decade and a later decade that can differ rather than a full year-by-year market path. Change the balance, the rate and the years left and the odds are yours.
The model
Two paths, the same cash. The pay-it-down path throws the spare $1,000 a month at the loan until it clears, then puts the whole freed payment into the market. The invest path runs the mortgage to term and invests $1,000 a month from year one. Both finish year 22 owning the house free and clear, so the house cancels out. Everything is nominal, because the mortgage rate is nominal.
| Loan balance today | $340,000 |
| Mortgage rate | 6.25% APR, 22 years left |
| Scheduled monthly payment | $2,372.96 |
| Spare cash each month | $1,000 |
| Market return, years 1 to 10 | 1% - 8% - 13% (uncertain) |
| Market return, years 11 to 22 | 3% - 9% - 14% (uncertain) |
| Year the mortgage clears if you pay it down | 12 |
| Ending wealth gap at year 22 | simulated |
Once it is in your sheet
- The model arrives with real numbers in it and runs as it stands, so you can press the button first and understand it second.
- Change the numbers to yours. The sheet marks which cells are inputs and which hold formulas, and most labels carry a note explaining the row.
- Press the run button at the bottom of the panel. It is labeled for the tool you are in, and the result lands on its own tab, with a written reading of it beside the figures.
Never used Google Sheets? Start here goes the whole way, in seven steps, and assumes nothing.
Next question
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Every model like this one, and the method behind them: Monte Carlo simulation.