By paying off the mortgage now you would be taking a "guaranteed" profit now in the form of reduced mortgage interest, but are forgoing uncertain equity investment returns
I'm going to split this answer into sections, because the topic is complicated. First I'll lay out a high level overview of the pros and cons of the options, and what I think you should do (spoiler get proper independent financial advice). Next I'll do my best to analyse each option, and provide what assumptions and simplifications I've made to get that analysis. I'll also, explicitly state what I've ignored in this analysis (primarily taxes).
High level overview
Ultimately it comes down to how much risk you are happy in taking (are you risk seeking, risk neutral or risk averse, and to what extent).
Paying off the mortgage now (or a good chunk of the mortgage) allows you to get a "guaranteed" profit by way of a significant reduction in future interest paid (because of the magic of compounding interest). It's also much less volatile profit, since your interest rate is fixed, so we can calculate with a good amount of certainty what that profit is.
On the other hand, keeping money invested in stocks is riskier, both in terms of the potential volatility of the investment, and because of the lack of certainty over what the actual earned profit will be.
You need to decide what level of risk you are happy with taking. If you continue investing in the stock market, you are taking the risk that your investment is completely wiped out, and you are left with the same mortgage and no investment. On the flip side, by paying off the mortgage early, you are taking the opportunity cost (which is a risk of sorts) of forgoing potentially higher returns from stock market investing.
Quantifying that risk precisely for you would require taking some professional financial advice (beyond asking on a "random site" on the internet), and decisions like this can potentially affect you for a long time to come.
In terms of financial advice, the type of advice I would advocate looking for, is independent, financial planning advice, that you pay a flat fee for (ie not one that has any direct input into what investments you pick, nor one that gets compensated based on the performance of your investments).
This answer is not a substitute for such advice, but should provide you with a starting point for your own research.
First off, you are right to be concerned. This is a lot of money you are dealing with, and decisions about it should not be taken lightly. I will also preface all of this by saying, get some professional financial advice on this, given the amount of money in question. Asking "the internet", even a well intentioned section of the internet like this one, is not a substitute for financial advice, though it can help inform what you ask when you are getting that advice.
Mortgage Example Analysis
You haven't mentioned how long is left on your mortgage, but, given the size of it, I'm going to assume ~20 years for the purposes of my calculations. I'm also going to assume that the 212,000 quoted at the top of the answer, was before the 60k was paid off last week (since 247-212 =/= 60). Finally, as you have clarified you are on a fixed rate with no repayment penalty, the analysis below assumes that fixed interest rate for the duration. If any of these assumptions are wrong, please let me know and I can rework the figures.
I'm also going to be rounding figures in my answer
- If you had paid nothing off of the 212,000 mortgage, and just paid the monthly repayments for the remainder of a 20 year term, the bank would (at an interest rate of 3.675%) make ~86,000 in profit on the mortgage.
- By paying off 60,000 last week, that profit of the bank has been reduced to ~61,500, saving you ~24,500 over 20 years!
- If you pay off a further 40,000, the total bank profit on your mortgage (over 20 years) drops to ~45,500, a further saving of ~16,000
So, by paying off the mortgage early in the way you were planning to do, assuming a 20 year remaining term, your "profit" on that 100,000 investment is ~40,500, or 40.5%. You are taking some risks by repaying your mortgage early:
- By putting the money into your mortgage, you are turning a liquid asset (cash) into an illiquid one (house equity).
- If you aren't familiar with liquid vs illiquid assets, a liquid asset is one you can access immediately and use/convert in order to pay for something, an illiquid asset on the other hand, is one that takes some amount of time to release the money for other use.
- You are potentially foregoing potentially higher returns in equity (stock) investments (but also not exposing yourself to the downside). This is an opportunity cost.
At the same time, you do get some benefit from this strategy. You own the house after 2-4 years instead of 20, and after those 2-4 years, any monies you were paying towards a mortgage, are instead able to be used for something else (investing or discretionary spending). Just by virtue of not having to pay the mortgage, you have increased your effective income for other uses by 20-40% depending on your circumstances.
Stock Market Example Analysis
Comparing this against investing on the stock market:
- Investing in the stock market costs money. Fees for investing in anything but an index fund or buying and holding stocks for a long term investment can be 1-2% per annum (usually called an Annual Management Charge or AMC). This AMC is analogous to mortgage interest charges (particularly since it significantly reduces your compounded returns over 20 years).
- Stock Markets have significant levels of volatility (that is their prices, and thus the value of your investments, can fluctuate quickly, and the declines and increases can be large)
- Stock Market returns have historically been higher (in aggregate) than your mortgage interest rate (but you have to remember the AMC dramatically reduces your total return due to the magic of compound interest).
Lets make some assumptions, to illustrate the stock market complexities (note this is only an example and the numbers are not a prediction):
- Your investments do very well, and you are able to maintain a 7% investment return on the 100,000, over 20 years
- You are paying an AMC of 2% of your fund value to participate in this fund
- You don't sell the stocks for the full 20 year period, reinvesting any and all profits into the fund
- There are no "trading fees" on top of the AMC (there are in most cases, but this makes the illustration easier). If this assumption is incorrect (which it is) then those trading fees (eg Bid/Offer spread, stock purchase fee etc) will further reduce any profits you make.
Making those assumptions:
- A 7% annual return, before the AMC, would have increased the 100,000 to ~387,000
- Taking the AMC into account, the value of your initial 100,000 after 20 years is ~265,000 (Yes that "small" 2% AMC results in a drop in value of 122,000!), for a profit of 165,000.
As I mentioned, equity investments are volatile, so we need to look at a couple of other potential interest rates:
- If instead your investments were to make a still respectible 4% return, then, after taking into account the AMC, your total investment value after 20 years would be ~148,500
- If your investment did really bad (either because the fund was terrible, or your made bad investment decisions), and it only broke even on it's fund performance, then with the AMC your initial 100,000 investment would be worth ~66,700 (a loss of ~33,300!)
Now obviously, this sort of analysis makes wide, and pretty sweeping assumptions, but it's useful as an illustration of what can happen.
But what about Taxes?
Lastly, any gains you make on your stock market investments are, in most jurisdictions, taxable (that is you will owe tax on the gains you have made), once you liquidate the position. This will further reduce any profits you get from your investment.
On the other side of the fence, paying off your mortgage, makes you a "profit" that isn't taxable (as you simply aren't paying more interest). In certain jurisdictions, you may be able to claim mortgage interest relief (or claims the mortgage interest as a tax deduction), but that is highly location specific. If you are able to claim this relief, then by paying the mortgage off early, you forgo this "income" from the government, which has the effect of reducing the "profit" from the early repayment. From a brief check of the US situation (in which I am not an expert), given this is not your primary residence, you do not qualify for the US relief (but you should verify this yourself).
How both of these (Capital Gains Tax and Mortgage Interest Relief) interact with potential profits is highly dependent on jurisdiction (for example in the UK most capital gains are taxed at 28%, while in the US it varies from 10% - 37% depending on the particular gain, similarly, in the UK Mortgage Interest Relief is only offered on by-to-let mortgages, and only since 2017, while in Ireland, Mortgage Interest Relief is only available to first time buyers who purchased their home prior to 2012, and expires this year).
Both taxes and reliefs can also have specific limits based on your earnings from other sources, which can potentially complicate matters greatly. The effect of taxes and reliefs on your decision is something that you should get specific advice about.
So what next?
Get some proper financial advice. If I were in your situation, this is the sort of information I'd expect from a financial advisor:
- A 5, 10, 15 & 20 year projection of the two primary options you are considering, including an indication of potential profits (after any fees etc are taken into account)
- The assumptions required to justify those projections (and an indication of where those assumptions were sourced and how variable they could be)
- An indication of the variance or volatility of the different options
- How taxes and reliefs in your jurisdiction affect these options
Here is what I would explicitly not expect to get from them (if they are a truly independent financial planning adviser):
- Recommendations on any specific investments
- Any sort of cross selling for other services
But what if the value of my home goes down, am I not just throwing money away if I repay the mortgage early in that situation?
No, the value of your home for sale, and how much you owe, and will need to repay on the mortgage are two separate things. The mortgage is linked to how much your home was worth when you bought it not it's value now. By repaying the mortgage you are reducing your total interest paid for the property. Regardless of how much your property is worth, that amount is a "fixed" (within the bounds of variable interest rates) and known quantity.