| Year | Extra Payment Path | Invest Extra Path | Difference | Mortgage Balance (Extra) | Interest Saved (Cumulative) |
|---|
Extra Payment Path net worth = equity advantage (lower remaining balance) + post-payoff investment portfolio. Once the mortgage is fully paid off, the entire freed payment — principal + interest + extra — is redirected to investments.
Invest Extra Path net worth = investment portfolio of the extra monthly amount, compounding at the expected return. Normal mortgage continues on schedule.
The comparison is fair because both paths share the same baseline (normal mortgage payments). After the normal mortgage pays off in the invest path, the freed payment is also invested. The only thing being compared is what happens to the extra dollars — and how the knock-on effect of early payoff changes the math.
The deduction factor — often the deciding variable: If you itemize deductions, the government effectively subsidizes your mortgage interest. Your effective rate = nominal rate × (1 − tax bracket). A 7% mortgage at a 22% bracket costs only 5.46% after tax; at 32%, it's 4.76%. This lower effective rate makes paying down your mortgage less compelling — because the rate you're "beating" is now significantly lower. It also penalizes Path A (extra payments) because paying down faster means losing more of the interest deduction each year. Whether you itemize — and at what bracket — is frequently what tips the comparison from "pay down" to "invest."
Do you actually itemize? Only about 10–15% of taxpayers currently itemize (post-2017 TCJA, which nearly doubled the standard deduction). You itemize only if your total deductible expenses — mortgage interest, state and local taxes (capped at $10,000), charitable contributions — exceed $14,600 (single) or $29,200 (married, 2024). Many homeowners assume they get the deduction but don't clear this threshold, especially as their mortgage matures and interest shrinks.