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)