Invest vs. Payoff

This form allows you to compare what would happen if you took one of two choices with a big chunk of cash you have -- paying off your mortgage, or investing it instead. This tries to take into account your tax situation and assumes you always itemize (even late into your mortgage when the interest portion of your monthly payment is less -- I am assuming you give to charities, and pay state and local taxes too!!)

To determine if you should invest or prepay your mortgage, you need to compare cost of borrowing with the potential return from investing. If your cost of borrowing is a 6% net after tax interest rate, and you can invest assuming an 8% after-tax rate, it may be better to invest since the money may generate 2% more than you by reducing the debt burden of 6%

I am assuming you give to charities, and pay state and local taxes too!!)

Assumptions:
Here I simply build up two investment accounts, one with a large initial lump sum equal to the loan balance, and one initially at zero but which is contributed the equivalent to the monthly payment. If the investment is after-tax the yield is reduced by the tax rate, otherwise it is unchanged. The savings due to tax deductions on the loan are also added as contributions to the investment to help demonstrate the effects of tax deductibility of interest that is lost in the payoff case.

Information and interactive calculators are made available to you, a financial advisor, as self-help tools for your independent use and are not intended to provide investment advice. We cannot and do not guarantee their applicability or accuracy in regards to client's individual circumstances. All examples are hypothetical and are for illustrative purposes. Related to tax implications, property purchase and sale prices, and loan terms clients need to seek personalized advice from qualified real estate and tax professionals.