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Should We Pay Off Mortgage or Invest First?

If you have a mortgage (housing loan) and plan to pay if off earlier, I bet you will have the dilemma of paying off the mortgage or invest first. Seriously, I have this dilemma for years.

Okay, probably just 1 year and 3 months.

Ever since I am serious about paying off my mortgage, I have been reading articles and doing calculations on my own. After some thorough research, I have finally found the best way for me to pay off my mortgage earlier.

Other than sharing with you how I make a decision, I have a FREE spreadsheet that can help you to decide whether you should pay off mortgage or invest first. (Scroll to the bottom to get it)

Before that, let us do some background checks.

How Good Are You in Investing?

Let’s be real. Not everyone is familiar in investing.

How to define good? Well, if you can achieve an investment return higher than the mortgage interest rate, then you are good.

But if your only investment is Fixed Deposit and EPF, here’s the thing:

Just pay your mortgage first if you are a risk-averse person. Investing has some potential risks, which you probably prefer not to do it.

However. if you are willing to learn how to invest by yourself, then you may start learning about robo-advisors.

Personally, I would recommend StashAway as I have been using it for more than a year. It has a very low entry barrier (as low as RM1) and easy to use. Furthermore, you will get returns close to EPF returns if you choose a slightly higher risk index.

If you insist to invest, please read on.

3 Ways to Do With Your Extra Cash

When we said paying mortgage first or invest first, there are actually 3 ways to do this.

Pay Mortgage First, Then Invest

It means putting the extra money into your mortgage. This will help to reduce both your mortgage principal value and interest charged on the next month.

After paying off the mortgage, you can then invest the extra cash flow.

Invest First, Then Pay Off Mortgage

Instead of paying extra on your mortgage, you can leverage the extra money by investing it. This might be a wise decision especially during 2021 when the mortgage interest rate is as low as 3%.

When your investment value is higher than the mortgage principal, you pay off the whole mortgage at once.

Invest All The Way

The third way is similar to the second method. The difference is, you don’t pay off your mortgage early.

Why pay the mortgage if you can grow the capital at a faster rate? If you can achieve 6 to 8% of investment return every year, you will have a bigger stash of cash if you don’t pay off your mortgage earlier.

The question is not “which method you should choose?”

It is rather “which method suits you?

Here are My Findings

Detective pikachu shows findings of whether we should pay off mortgage or invest first

Instead of telling you, I prefer to show you my calculations, whether I should pay off the mortgage or invest first.

Here is my housing loan plan by Public Bank:

Let assume the interest rate and monthly installment are fixed for my whole mortgage period. This means I will pay off my mortgage in 23 years and 7 months by default.

Hence, every scenario should be calculated based on the same period.

For my case, I would like to increase my mortgage monthly installment to RM1,800. That’s RM346 extra from the default monthly installment.

By paying this extra money into my mortgage, it shows that I will pay off my mortgage in 17 years and 7 months (0.55 x 12 months).

It means I could be debt-free 6 years earlier! Imagine the things we can do with that 6 years worth of extra cash flow.

Matrix Table of Different Investment Return

But what if I invest that extra cash and get a better investment return?

Hence, I have created a matrix table for all the different methods. It is important to include different investment returns as we will never get a guaranteed return when we invest.

The values in the matrix table show the final investment value after invested with certain average returns. By using this value, I can see which method is the most effective.

It is no surprise that invest that extra money all the way gives us the most value of our money. Though I observe that it has a small difference between Method 2 and 3 for 3 to 4% investment return.

In this calculation,

  • I assume that I will continue to invest that extra cash flow of RM1,800 after finish pay off my mortgage early, until the end of the mortgage period.
  • Every final value is taken from the same default mortgage period, which is 23 years and 7 months.
  • To make things simple, I assume the mortgage interest rate will not change for the whole period.

How Fast I Can Pay Off My Mortgage

Other than the final investment values, the loan period is also an important factor to consider. After all, my initial goal is to pay off my mortgage early.

I already knew that paying extra on my mortgage can shorten it by 6 years. So I’m comparing it with method 2, which invests first, pays the mortgage later.

As expected, the loan period gets shorter with higher investment returns.

Another Scenario for Different Interest Rate

My housing loan plan has a flexible interest rate. So it is unlikely that my mortgage interest stays at 2.97% for the whole mortgage period. Hence I make another matrix table for the initial interest rate, which is 4.22%.

If the interest went back to 4.22%, then my extra money will be RM150 if I fix my mortgage monthly payment at RM1,800.

With an extra RM150 paying off the mortgage, I only able to shorten the mortgage by 3 years and 2 months. It is no surprise as the extra payment has been reduced from RM346 to RM150.

So here is my matrix table for 4.22% interest rate:

It is obvious that we shouldn’t invest the extra money if the return is lower than the mortgage interest rate. And the rest of the results is similar to what we see in the previous matrix table.

For the loan period, there is only 1 year 3 months difference between highest interest return compared with paying extra on the mortgage itself.

The Reason Behind Paying the Extra Money

Before you even ask if you should pay off the mortgage or invest first, tell me your reason behind this. What makes you paying extra for the mortgage?

I don’t know about you, but my goal is to be debt-free as early as possible. Hence my first priority is to pay off the mortgage as soon as possible, not the highest investment value.

Hence I choose to invest first pays the mortgage later. The most balanced method between paying off the mortgage early and getting a higher investment return.

If you want to maximize your net worth, then invest all the way then. If investing is too scary for you, then just focusing on paying more on the mortgage.


Stick with paying more mortgage is a psychologically wise decision. While choosing to invest with that extra money is a financially wise decision.

In the end, the decision is based on your personal goal. While most of us think of achieving the highest return possible, some just want to have that peace of mind.

Everyone will have different opinions, and that’s okay.

“After all, having no home loan, no debt and fewer monthly payments can feel liberating โ€“ and you canโ€™t put a price on peace of mind.”

iMoney’s Article – Is Paying Off Your Home Loan Early A Good Idea?

Are you interested in deep diving into the mortgage vs invest calculation? Here’s my very own spreadsheet to calculate it: Spreadsheet Link

Note: Please make a copy of this spreadsheet for yourself. You cannot make any edit on my spreadsheet.

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