I Need Advice on Balancing Investments Between Home Mortgage and ETFs

Real Estate
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Hey guys… :wave:

I have been following the Mustachian way for a while, focusing heavily on low-cost ETFs to build my investment portfolio. However, I’m also carrying a mortgage on my home, and with interest rates starting to rise, I am wondering if it might make more sense to redirect some of my monthly savings towards paying down the mortgage instead of continuing to invest as aggressively in ETFs.

I know the general wisdom often leans towards investing due to the potential for higher returns, but with the changing interest rate environment, I’m starting to question whether that’s the right move for me at the moment. Has anyone else faced a similar dilemma? How did you decide what was best for your situation?

I also check this: https://forum.mustachianpost.com/t/i-need-advice-on-balancing-investments-between-home-mortgage-and-etmendix
But I have not found any solution. Could anyone guide me about this?

Thanks in advance!

Respected community member! :innocent:

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I thought rates were falling, not rising? What are the terms of your current mortgage?

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Interest rates have been falling for a while now. We are looong past the rate hikes in Switzerland.

I would probably not pay down the mortage. It‘s on the cheapest money you can get and other investments will likely have higher return.

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Have you also considered using your 2nd pillar to reduce your mortgage? Sometimes the pension fund interest rates are not very high, so it might make sense to withdraw to fund the mortgage. Again depends on what income your 2nd pillar generates versus what you pay to bank for mortgage.

In general there are two ways to look at it

financial mathematics -: where interest on debt should be lower than what you can generate somewhere else. In addition, mortgage payments have tax deduction, so that also helps the investor. Things to consider

  • annual mortgage interest
  • Tax deductible and marginal tax rate
  • Impact on wealth tax
  • Expected returns from ETF / alternate investments post tax

Pease of mind -: if you are concerned that you carry a large mortgage and you might always have a recurring payment that you need to worry about, then it’s best to reduce the debt. This depends a lot on certainty of future income and your personal tolerance

P.S -: important aspect is that since most people never pay off their mortgages and have perpetual interest obligations, the asset prices are quite high in CH, one needs to consider if any reduction in mortgage is meaningful or just slight trim of the overall huge debt. Because what difference does it make if mortgage is 1.5 million or 1.4 million :slight_smile:

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There are 3 ways I would look at it:

  1. Cashflow: if I were light on cashflow, I might consider amortizing more of my mortgage to reduce the interest burden. An alternative would be getting more income through interests/dividends but it’s probably more stressful on a psychological point of view.

  2. Risk: how much debt am I willing to take on? Can I or my dependents, if I have any, afford the mortgage if something happens to me (or my partner)?

  3. Returns: What are my target expected returns and how does my mortgage play into that?

Current interest rates are not high on a historical basis, if I didn’t feel comfortable with my mortgage under these conditions, I’d probably try to lower it to a level where I would. If I am confortable with the current level of my mortgage, then I’d keep investing according to my asset allocation.

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