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Mortgage payoff vs. invest (lump sum)

Compare putting a lump on principal today versus investing that lump while keeping the original loan. The payoff side keeps making the same original P&I payment until the mortgage reaches zero, then invests that full payment each month. The chart credits the payoff path with cumulative interest avoided versus the original amortization — the interest you would have owed each month if you had not used the lump on the loan.

Loan & lump sum

Applied to principal in payoff path; stays invested in invest path
Years (use 0.5 for six months)
Nominal; compounded monthly on the portfolio

Assumptions

Invest lump path: put the lump in the portfolio at month 0 and keep the original amortizing loan (same payment and schedule as if you never prepaid). Mortgage payments come from other income, not from the invested lump.

Payoff path: use the lump on principal at month 0. If a balance remains, keep making the original monthly P&I payment instead of recasting the loan. That accelerates the payoff date; after the loan is gone you invest the full original P&I each month. The chart’s green line also adds cumulative interest avoided vs the original schedule (interest you would have owed that month if you had not used the lump on the loan).
Taxes, risk, and prepayment penalties

This model does not adjust for mortgage interest deduction or tax on investment gains. Investment returns are a single fixed rate (not a distribution of outcomes). Add prepayment penalties or refi changes outside this sheet if they apply.

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Summary at end of remaining term

Payoff + invest freed payment + avoided interest
—
Brokerage − debt + cumulative interest avoided vs original loan
Invest lump, keep mortgage
—
Brokerage − remaining principal (same interest as original schedule)
Interest paid (payoff path) —
Interest paid (invest path = original schedule) —
Interest avoided vs original (payoff path) —
Difference (invest net − payoff score) —
Verdict —
Comparison score over time — years on horizontal axis
Metric Payoff path Invest path

Invest lump (purple): portfolio minus loan balance — the same path as never putting the lump on the mortgage, so mortgage interest matches the original amortization. Payoff + freed payment (green): portfolio minus debt plus running total of (original-schedule interest − interest you actually pay after the lump). That add-on is dollars of interest you do not send to the lender compared with keeping the old loan; it is not cash in your brokerage, but it answers “include the interest I would have paid if I kept it.” Monthly investments on the payoff path start after the accelerated mortgage payoff date, when the full original P&I payment is free to invest.