Assume the bank's loan has a 2.6% interest rate. (I know this is historically very low, but even lower is not impossible.)
Assume one has $3000 per month, leftover, after all their expenses and expenditures and that the loan requires about $1000 per month. So the remaining income is $2000/mo.
If they took the $100k (off the top of the home loan) as principle, and invested $2000 per month in mutual funds and index funds for 30 years, they would theoretically make...
- $1.5M at 3.4% ROR (6%-2.6%)
- $2.8M at 6.4% ROR (9%-2.6%)
Is there a major flaw in this back-of-the-envelope calculation?
Any scheme of borrowing money to "invest" is in fact a gamble and should be avoided. Stick to your own money for investments.
The "gamble" is with money that will effectively be paid off, either way, even if the market takes a dive.
Assume your investment will lose all of its value and you lose your job and need to live off your savings for 6 months to a year while still repaying the debt. (If you think losing its value is unrealistic, then assume the brokerage goes bankrupt and it takes 5 years for them to sort through the mess and finally release your assets back to you).
In that scenario, are you OK?
If yes, then consider the investment.
The answer is yes, unless there is a flaw I did not consider. The existence of an emergency fund in savings (six-months of costs) was a previously tacit assumption.
This will depend greatly on your personal appetite for risk. From a strictly monetary point of view, you'd likely do better by investing in the market (although past performance does not guarantee future results).