🏠 Should I pay off my house with a windfall bonus instead of investing in index funds
House or index funds
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This calculator helps you analyze the financial implications of using a large sum of money (like a bonus or windfall) to either pay off your mortgage or invest in index funds. The core of this decision is a tradeoff between a guaranteed, tax-free return (the mortgage interest you save) and a potentially higher, but taxable and not guaranteed, return from the stock market. This tool focuses on the math, but your final decision should also heavily weigh personal factors like risk tolerance and peace of mind.
💰 Your Financials & Assumptions
Enter the details of your windfall, mortgage, and investment assumptions. For a direct comparison, this calculator assumes the windfall amount is equal to the remaining mortgage principal.
Mortgage Remaining Principal
🏠 Scenario 1: Pay Off the House
In this scenario, you use the windfall to pay off the remaining mortgage balance. Your return is the total amount of interest you save over the remaining life of the loan.
Guaranteed Return (Total Interest Saved)
📈 Scenario 2: Invest the Windfall
In this scenario, you invest the windfall in a diversified index fund and continue making your regular mortgage payments. Your return is the potential growth of the investment over the same time period, minus taxes.
Potential Net Return (After-Tax Investment Gain)
🤔 Tradeoffs & Non-Financial Factors
This decision is deeply personal and goes beyond the numbers. Consider these critical non-financial factors.
The Case for Paying Off the House:
- Peace of Mind: The psychological benefit of being completely debt-free is immense for many people. It's a powerful feeling of security.
- Guaranteed Return: You are guaranteed to save the future interest payments. This is a risk-free return equal to your mortgage rate.
- Increased Cash Flow: Eliminating a mortgage payment frees up a significant amount of cash each month, which can be saved, invested, or used to improve your quality of life.
The Case for Investing:
- Higher Potential Returns: Over the long term, the stock market has historically provided returns higher than typical mortgage rates. This could lead to significantly greater wealth.
- Liquidity: Money in an investment account is far more accessible (liquid) than equity tied up in your home. It can be sold if you need cash for other opportunities or emergencies.
- Inflation Advantage: You are paying back your 'cheap' mortgage debt with future dollars that are worth less due to inflation, while your investments are (hopefully) growing faster than inflation.
Key Risks to Consider:
- Investing Risk: The stock market can go down. There is no guarantee that your investments will perform as expected over your specific time horizon.
- Opportunity Cost: By paying off the house, you lose the opportunity for your money to grow at a potentially higher rate in the market.
⚖️ Financial Comparison
This is a direct comparison of the net financial benefit from each scenario over the loan's remaining term.
Guaranteed Return from Paying Off House
Potential Net Return from Investing
Financial Advantage of Investing (Potential)
Mathematical Recommendation
Investing offers a higher potential return.
Last updated by mayam
Privacy: None of your data is transmitted to the author of this view or any other third parties. Financial inputs are not used to for identification purposes, and are only used to calculate the result.
Disclaimer: This content and any calculations provided are for informational purposes only. The views, calculations, and methodologies expressed are those of the author and do not necessarily reflect those of this platform. Not financial advice. Users are solely responsible for any decisions made based on this information.
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