Calculator
Should you pay off the house?
You have money set aside. Use it to clear the loan, or put it to work instead? There is a real answer. It comes down to one number, and most people never check it.
Your numbers
Check your statement. This is the number that decides it.
After fees. Pick a number you really expect — not a lucky year.
Not sure on the tax numbers? Leave them. They only change the answer a little.
The answer
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- Needs to earn
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- Your loan rate
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- Payment each month
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Both ways cost you the same each month. Whatever you are not paying the bank gets invested at the same rate, so neither side gets free money.
Or: put the money in an annuity
An annuity is a contract with an insurance company. Your money is not in the market, so it does not drop when the market does. You can add riders — extras that cost a yearly fee and pay for something specific.
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Read this part twice. The care pot and the family money are not cash you can spend. They pay out only under the rules in the contract, and those rules are different at every insurance company and in every state. The numbers above use plain round assumptions, not a real quote.
What the math is really saying
Paying off a loan is a sure thing.
Every dollar you put against the loan saves you the interest that dollar would have cost. If the loan is at 6.5%, paying it down pays you 6.5%. It is certain. There are no bad years. And nobody taxes it, because you did not earn money — you avoided a bill.
That is the bar. Almost nothing else pays you 6.5% for sure and tax free. So when someone says to invest the money instead, the real question is not “could this beat 6.5% in a good year?” It is “will this beat 6.5% every year, after tax and fees, for as long as the loan would have run?”
And the bar sits higher than your rate, because of taxes. If your gains get taxed when you pull the money out, the investment has to earn more just to break even. That gap gets wider when the money sits somewhere the gains are taxed like regular pay. That is why the number above usually lands higher than your loan rate.
When the answer flips
Three times paying it off is the wrong move.
Your rate is really low
If you locked in 3%, the bar is low enough that a spread-out portfolio has a fair shot over twenty years. That is a real argument, and it is the one case where this works.
Rates under about 4%
You have no cash set aside
Putting your last spare dollar into the house is how people end up on a credit card a year later. Once the money is in the house, you cannot get it back without selling or borrowing again.
Keep cash first
Your job matches your savings
A dollar-for-dollar match doubles your money right away. Nothing about a loan beats that. Take the whole match before one extra dollar goes to the house.
Match first, then the loan
Worth reading twice
If someone tells you to keep the loan and buy an annuity.
This comes up enough to name it. The pitch is that you keep a cheap loan and put your money into an annuity that supposedly earns more. Sometimes the math works. Often it does not, and regulators watch this one closely for good reason.
Here is the test. Compare sure things to sure things. Paying the loan down pays your rate for certain. An indexed annuity's floor in a bad year is usually zero, not the number printed on the sales page. If the person showing you the plan lines up a certain 6.5% against a hoped-for 7%, that is not a fair comparison. Ask to see the guaranteed column, not the projected one.
There are times when keeping the loan and adding protection makes real sense — usually when the point is taking care of your family, not beating a rate. That is a different conversation, and it should start with your numbers, not with a product.
No pressure, no quote
Want a second look at your real numbers?
Send it over and one of our agents will look at it, usually the same day. They will tell you plainly what they would do — including when the answer is that you are fine and should just pay the thing off.
We are an independent life insurance agency, not a bank and not an investment advisor. If your case needs a CPA or a lawyer, we will say so.
This calculator is general education. It is not advice, and it is not a recommendation to buy or sell anything. It works only from the numbers you type in and will not match your real results. It does not account for your actual tax situation, closing costs, prepayment penalties, capital gains or depreciation recapture on anything you sell to free up cash, inflation, or changes in your income. Investment returns are not guaranteed and past performance does not predict future results. Annuity and rider features, costs, benefit triggers, waiting periods and availability vary by carrier and by state; the rider figures here use simplified assumptions and are not a quote or an illustration of any specific product. Annuities are long-term contracts with surrender charges, and withdrawals reduce values and benefits. All guarantees depend on the claims-paying ability of the issuing insurance company. Long-term care riders are not a substitute for a long-term care insurance policy. Talk to your own CPA, attorney or licensed advisor before acting on anything here.
Questions people ask
Is it better to pay off my mortgage or invest the money?
It comes down to your loan's interest rate. Paying down a loan pays you back that same rate, for sure, with no tax on it. To beat that, an investment has to earn more than your rate every year, after taxes and fees. Under about 4% that is a fair bet over a long stretch. Near 7% or higher it is a hard bet, because very little pays that much for sure.
Why is the break-even number higher than my loan rate?
Two reasons. Money you save on loan interest is not taxed, but money you make investing usually is. And if the money sits in an annuity or a retirement account, the gains are taxed as regular income, not at the lower rate for long-term gains. So the investment has to earn more just to end up even.
Should I use my home equity to buy an annuity?
Go slow with this one. Keeping debt on your house in order to buy an annuity is a plan regulators watch closely, and it only works if the annuity really out-earns the loan after tax. Compare sure things to sure things: paying the loan down pays your rate for certain, while an indexed annuity's floor in a bad year is usually zero, not the number on the sales page. Get a second set of eyes before you do it.
What do the LTC and death benefit riders do?
A long-term care rider sets aside a larger pot of money, often about double the account, that you can use if you need help with daily living. A death benefit rider grows a set amount for your family no matter what the account does. Both cost a yearly fee that comes out of your growth, which is why the calculator shows the account growing more slowly once you switch them on. Terms, costs and rules vary a lot by carrier and by state.
What does this calculator leave out?
A fair amount, on purpose. It does not know your real tax situation, what you might owe if you sell property to free up the cash, what it is worth to you to own your home free and clear, or what happens to your family if you die while the loan is still there. Those parts are worth a conversation.
Does paying off my mortgage early hurt my taxes?
For most families, no. Since the 2017 tax law raised the standard deduction, most homeowners no longer itemize, so they get no tax break from mortgage interest at all. If you do itemize, the break lowers your real loan rate and narrows the gap. Your CPA can tell you which group you are in.