What is the best order to pay off debt? Only debt being home loan. For example, my home loan has interest rate of 3.5% and the stock market (some total market fund, e.g., FZROX, VTSMX), ideally, goes up about 6% a year on average.

Which is the best scenario to pay off the debt the fastest?:

  • After expenses, pay extra into mortgage every month only.
  • Pay minimum on mortgage. After expenses, only invest in the stock market every month, as the gain in the stock market beats the interest on the mortgage. When enough money is saved in market to pay off home, pay it off all at once.
  • Pay minimum on mortgage. After expenses, invest in the stock market every month and at the end of the year pay a lump sum invested off on mortgage.
  • Pay minimum on mortgage. Invest in stock market every month. Buy an investment property and use the rent collection to pay off the home with the highest interest rate.

Updates: - I purposely left out the amounts to understand the generalized approach but it would be a much larger loan amount than initial investment amount (e.g., 500k loan, 50k investment)


3 Answers 3


The answer is: It depends.

If your only goal is to pay off the mortgage in the fastest possible way then:
If your disposable income pays off the mortgage in 3 years or less you should probably just make additional principal payments because the stock market may be down when you would have had enough money to pay it off....
If there's no way to pay it off in under 10 years you're extremely likely better off investing the money into an index fund and then pulling it out when you have enough to make a lump sum payment for the remaining principal.
In between you're very likely to be better off investing, but an event like the current one could derail things.

As D Stanley said, the safest way is always going to be to directly make payments on the mortgage. I would invest the money and just make the monthly payments (a few months in advance if possible, because that's better than having the money in your emergency account).


Since three of your options involve risk, there's no way to know which would be "fastest". While they all have average returns greater than the interest on your mortgage, they can swing wildly from month to month. The stock market could go down, and it may take longer to recover your investment that it would to just pay off the mortgage. A rental property can go unrented for 6 months reducing your ability to pay off debt, or worse, causing you to dip into your savings to pay the mortgage on the rental.

The safest way is to just pay as much as you can every month toward the house. Then start saving up for retirement in the stock market or for an investment property.


First, it is always best to pay off high-interest debt first. If a mortgage is your only debt however, you do have some options.

You use the term 'stock market' as though it is a single entity you can buy which is not the case. You can buy ETFs (exchange traded funds) that mirror certain indexes in the market. These funds will always have some fees and management expenses attached. As we are seeing right now, there are no guarantees in the market, and to assume a 6% return every year of a 30-year mortgage would be non-sensical.

SPY, which is an ETF that attempts to mirror the S&P500 has a wide variety of returns from -4.45% to 30% in just the last year. So to assume that you can just sit money in the market and be guaranteed growth is foolhardy, especially right now.

Now for your question about how to pay off your mortgage. If that is your principal debt (ie no other higher interest debt), then you should be putting any extra after expenses into your payment every month. Paying it off monthly (as opposed to saving for a year or however long) is always beneficial because it will reduce your principal (the value of your mortgage) and you will therefore pay less in interest over the course of the mortgage.

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