You're paying 4% on one side and could be earning 7 or 8% on the other. On paper the arithmetic is obvious — and on paper is exactly where it stays, because the 4% is certain and the 8% isn't. This runs both paths properly, with identical monthly cash outflow, and shows how often the market actually wins.
Investments minus whatever is still owed. Both paths pay the same amount out each month.
5,000 simulated market paths at your assumed return and volatility.
Time is the variable that matters most. Over three years the market is close to a coin flip; over twenty the odds shift a long way toward investing — provided you never have to sell at the wrong moment, which is the assumption this table quietly makes.
The most common money question in retirement, and the one where the obvious answer is slightly wrong.
The reasoning goes: I'm paying 4% on the mortgage and could earn 7 or 8% in the market, so investing wins by 3 or 4% a year. It's a sensible starting point, and two things spoil it.
Tax. The money you save by clearing debt is tax-free — nobody taxes an interest payment you didn't make. Investment returns usually are taxed. So a 4% mortgage saving is worth the same as a 5% taxable return at a 20% tax rate. Your investment has to clear that bar before it's even level, let alone ahead.
Certainty. The 4% is a promise. The 8% is an average across futures, some of which are unpleasant. Putting them side by side as though they're the same kind of number quietly hides the risk you'd be taking.
Alan has $100,000 spare and a $240,000 mortgage at 4% with 16 years left. He expects 7.5% from investing, taxed at 20%.
The calculator runs both paths with identical monthly outgoings — same repayment either way, and once the loan clears, that repayment gets invested. After 16 years, paying off leaves him with $204,000 of net worth and investing leaves $254,000. Investing wins by about $50,000.
The break-even return comes out at 5.07%, not 4%. That's the tax effect, made visible.
Then the simulation adds the part the averages hide. Investing wins in roughly two-thirds of simulated markets — not all of them. In the worst tenth he ends up behind. Alan has to decide whether an expected $50,000 is worth a one-in-three chance of being worse off, which is a question about him rather than about the maths.
Plenty of people run these numbers correctly, see that investing wins on average, pay off the mortgage anyway, and never regret it. That isn't a failure of nerve — a guaranteed outcome has real value, and sleeping well is a legitimate return.
Two things genuinely should change your answer, though. If clearing the loan would leave you short of accessible cash, check the liquidity calculator first — that's a real risk rather than a preference. And if you're close to retiring, the sequence risk version asks what happens if a crash arrives shortly after you've committed the money.
General information only — not financial or tax advice. Tax is modelled as a single flat rate on investment returns and a single flat relief rate on mortgage interest; real tax systems have brackets, allowances, timing rules and different treatment for income versus gains, any of which can change the answer. The comparison assumes you genuinely invest the money rather than spending it, that you keep making the same repayment either way, and that you never sell during a downturn. If any of those don't hold, the honest answer moves toward paying off the loan.