Of course, if you are clueless about investments I would advocate going for the investment everytime – its the best way to educate yourself. In contrast, if you have doubts about your ability to service the mortgage in the near future repayment may also be the right move.

There MAY be a different discussion if you are in Making Money 301 (a.k.a. ‘retirement’) and just want to preserve wealth. Even then, I would be leveraging into RE – just at a lesser Loan-to-Value Ratio.

BUT … the remainder of your comment is about SPECULATION, which really isn’t necessary unless you have a VERY financial mountain to climb and yoy are willing to go the ‘Summit or Bust’ route many times!

@ Shafer – No, mortgage interest is indeed flat … except if you have a P&I loan that recalc’s on current loan value and don’t reduce payments to match reduction in principal … then you are effectively getting a ‘compounding’ reduction in ‘whole life cost of the mortgage + principal’. I think

You make a strong argument for fixing the interest: inflation is suddenly on YOUR side. The ultimate anti-inflationary too, by corollary, is not to pay ANY principal for as long as possible!

@ Ben – there are online mortgage calculators that will show the effect of prepayment of principal, but to do so misses the point: from an investment perspective there is no advantage to take your capital OUT of circulation, when it could be used so much more effectively elsewhere (e.g. buy an investment property; start a business; heck, buy some stocks).

From what I have been able to understand myself if you put a dollar on principle on the first payment that dollar saves you a heck of a lot more than the extra dollar on principle halfway through the loan repayment period and no savings on the final payment.

With that said, there must be a formula indicating the amount of savings for each amount on principle for each payment in the amortization schedule. What would that be?

THAT would be helpful.

I have found that these folks that hate this strategy are reacting to the emotion of fear or scarcity. It is really pretty simple to set up a chart demonstrating the advantages of even getting the same rate of return as your mortgage rate. Of course the advantage of this arbitrage increases dramatically with every 1/4 point you do better than your mortgage rate!

If you can’t get 7-8% on your money then that is the real problem, not the simple mortgage arbitrage!

These articles just dont get it. Furthermore having this argument is the wrong argument. You should be looking for a range of opportunities to make a 100% pa or more not 10% pa. Once you have found a relatively good one, you pounce make your money, get out and start looking for the next opportunity. Once you have made your dough you can then decide what to do with it. You can decide to pay out your mortgage or top up your kids college fund or you can put it in a slower passive money making thing like rentals / 401K / super or you can invest it in the next big thing. Generally it is better to 2 or more of the 4 options depending on how much you have made, because you dont know if your next venture is going to be a doozy. In my case I used realestate speculation to pay out my mortgage and with the left over cash I am now looking for the next thing.