📐 Mathematical Formula & Derivation
\Delta_{\text{NetWealth}} = \text{FV}(\text{Extra}, r_{market}(1 - t_{cap}), N) - \text{InterestSaved}(\text{Balance}, r_{loan}, \text{Extra}) 🔬 Engineering Methodology & Benchmark Analysis
Every dollar used to prepay mortgage principal earns a guaranteed, risk-free return equal to your mortgage interest rate (adjusted for any itemized mortgage interest tax deduction).
Conversely, directing that same monthly cash flow into a diversified equity index (such as the S&P 500 or MSCI World) compounds over decades—and critically, even after paying off a mortgage early, an investor must reinvest the freed-up monthly mortgage payment for the remaining years to make an apples-to-apples terminal wealth comparison.
Our algorithm simulates both full monthly amortization schedules and compound portfolio growth across the entire baseline loan horizon.
🛠️ Step-by-Step Engineering Calculation Guide
- Remaining Mortgage Principal Balance: Configure "Remaining Mortgage Principal Balance" (default benchmark: 320000) or select an industry preset.
- Annual Mortgage Interest Rate (%): Configure "Annual Mortgage Interest Rate (%)" (default benchmark: 5.75) or select an industry preset.
- Remaining Loan Term (Years): Configure "Remaining Loan Term (Years)" (default benchmark: 22) or select an industry preset.
- Extra Monthly Cash Available (Payoff or Invest): Configure "Extra Monthly Cash Available (Payoff or Invest)" (default benchmark: 750) or select an industry preset.
- Expected Net Annual Portfolio Return (%): Configure "Expected Net Annual Portfolio Return (%)" (default benchmark: 8) or select an industry preset.