Pay Down or Invest?
After buying a home, the question comes up anew every year: should free money go into the mortgage or into your wealth? Both have their own logic – and which one holds up in a specific case is decided over decades, not in the year of payment.
The second mortgage has to be amortized – that much is mandatory. Things get interesting with the rest: should it be paid down voluntarily beyond that, or does free money work better in a portfolio? Few questions in personal financial planning are asked as often – and answered as often with a rule of thumb that knows nothing about your actual situation.
The case for amortizing
Every franc paid down saves the mortgage interest on it – certain, guaranteed, without fluctuation. Housing costs fall, and with them the burden that has to be carried in old age: after retirement, the bank recalculates affordability against the lower pension income, and a smaller mortgage can then make the difference between keeping the home or not. At its core, amortizing is a purchase of security and affordability.
The case for investing
The counter-argument: assets invested over the long term can earn more than the mortgage costs – can, not will. In return, the money stays available instead of being tied up in the property; once you have amortized, you only get that money back through a new credit review. For tax purposes, debt interest is deductible from income, which lowers the effective cost of the mortgage – though with the adopted system change to the imputed rental value, this calculation will shift in the coming years. That, too, is part of the truth: the rules of the game themselves do not stay constant for thirty years.
The third way: indirect amortization
Between these two poles lies indirect amortization: the repayment flows into Pillar 3a and is only credited to the mortgage later. The debt – and with it the interest deduction – remains in place for now, while the Pillar 3a balance grows with a tax deduction on the contributions. Whether this detour is superior to the direct route depends on the same variables as the underlying question: interest rate, investment return, tax rates, time horizon.
An equation with four unknowns
Mortgage interest rate, investment return, marginal tax rate, affordability in retirement – anyone who compares only two of these is calculating past their own situation. The rule of thumb "return higher than interest, so invest" ignores taxes, fluctuations and the moment the bank recalculates. The counter-rule "debt is always bad" ignores availability and opportunity. Both sound plausible; neither knows your trajectory.
In Wealth4Life, both paths – and the indirect variant – can be laid side by side as scenarios: with interest, amortization, taxes and affordability for every year, well beyond retirement. That turns the question of belief into a calculation.