Every so often, a client calls with a question that makes me think, “Now that’s a nice problem to have.”
Recently, someone reached out after receiving a $200,000 inheritance. Their question: “I’ve got a $400,000 mortgage on my home. Should I invest this in the stock market or pay down my mortgage?”
Let’s break it down.
The Mortgage Side of the Story
Mortgage balance: $400,000
Rate: 4%
Maturity: March 2027
Monthly payment: $2,100 (about $1,300 of that is interest)
Prepayment penalty for a big lump sum: $4,000
If they threw the $200K at the mortgage right away:
Interest savings in year one: ~$12,000
After the $4,000 penalty: Net savings = $8,000
Monthly payment drops to just over $1,000
End-of-year principal balance: $195,000
Not bad—less debt, lower payments, and instant breathing room.
The Stock Market Scenario
The stock market had an 8% return last year. If history repeated itself (big “if”):
$200,000 × 8% = $16,000 gain in one year
Mortgage stays at $2,100/month
End-of-year principal paid down: about $9,500
Total mortgage balance: $190,000
That’s a higher return on paper—but markets aren’t guaranteed. If returns were half that, you’d only see $8,000.
Side-by-Side
| Strategy | Cash Flow Impact | Year-End Mortgage | Year-End Gain/Savings |
| Pay Down Mortgage | ~$1,000/month freed up | $195K | $8,000 savings (after penalty) |
| Invest in Market | No change to payments | $190K | $16,000 (at 8% return) |
The Real Decider
Numbers aside, it comes down to two things:
Risk tolerance – The market might return 8%, or it might drop. Can you handle the swing?
Discipline – Paying down the mortgage frees up $1,000/month. If you actually invested that extra cash consistently, it could beat the market scenario over time—but most people, honestly, don’t.
Mortgage Tip for the Long Game
One of the smartest ways to slay a mortgage faster?
Increase your regular payment by the max allowed (often 15%).
Make one extra monthly payment at the start of the year.
Just that single extra payment can chop 5 years off your mortgage term. It’s small, steady, and powerful.
Bottom line: If you love certainty, paying down the mortgage is the safe win. If you’ve got the stomach for market swings and a disciplined approach, investing could deliver more.If you want to chat about your mortgage or investing using your home’s equity, I’m always here: lindsay@buyselllove.ca | 905-743-555
Let’s chat. Book a 30-minute appointment here.