A common budget and comparison horizon
A common budget and comparison horizon
Both strategies use the same monthly after-tax household budget: normal principal and interest plus the entered extra amount. Strategy A pays the mortgage first, then invests unused cash. Strategy B makes the normal mortgage payment and contributes the stated extra before income tax, with assumed employer funding and reinvested income-tax savings. After payoff, unused normal payments are invested. There is no contribution-frequency input or optimized pretax gross-up.
The comparison is after-tax investments minus remaining mortgage debt at the selected common horizon. Assumed gains tax applies only to positive taxable gains; assumed withdrawal tax applies to the whole pretax retirement balance. Common home value is omitted and interest saved is informational, not added again. Investments grow before month-end deposits. Return and tax rates are entered constant assumptions, not forecasts or verified eligibility. Contribution limits, vesting, penalties, escrow, fees, inflation and annual brokerage tax drag are excluded.
Both strategies use the same $2,700.00 monthly household cash budget and 300-month horizon. The comparison is after-tax investment assets minus remaining mortgage debt; common home value is omitted. Interest savings are informational and are not added to investments. This is an illustrative comparison, not a guaranteed investment outcome.
Better Strategy
Invest the extra amount for retirement
$211,828.79 modeled difference over 25 years (300 months), using the stated assumptions.
Key Assumptions
Mortgage interest, cash contributions, match and taxes round half-up to cents. Investment growth compounds between deposits using the assumed effective annual return; deposits occur at month-end and earn no same-month return. Market losses and zero returns can be tested; actual returns vary.
A applies regular P&I plus extra to the mortgage, then invests every unused cent in taxable brokerage, including the partial payoff month. B contributes the stated extra as pretax retirement saving, reinvests the assumed income-tax benefit monthly, and invests every unused regular P&I cent in brokerage. The tax benefit offsets part of the contribution's take-home cost, so reinvesting it preserves the same cash budget. This does not gross up the pretax contribution.
Brokerage tax applies only to positive gain above cash contributions; no tax credit is assumed for losses. Retirement tax applies to the full pretax balance at the separately entered withdrawal rate. Charts and results show hypothetical liquidation taxes at each checkpoint; those taxes are not withdrawn during compounding. Retirement balances may not be accessible at the horizon without penalties or restrictions.
Regular payment means P&I only: escrow, property taxes, insurance and fees are excluded. Salary, tax rates and returns stay constant. This model assumes the incremental match cap is unused and matching is fully vested. It does not validate contribution limits, existing plan contributions, eligibility, vesting schedules, deductions, state/FICA tax effects, annual brokerage tax drag, early-withdrawal or prepayment penalties, fees or inflation.
