Yahoo Finance carried this interesting article comparing making early repayments on a home mortgage against investing the money that would otherwise be spent on those early repayments.
The study on which the article was based concluded that more than 40% of people faced with this issue would be better off putting the additional savings into treasury bonds/mortgage backed securities. For the reasons identified in the article, the 40% number is almost certain low - very low. The time frame for the comparison was 25 years and was based on a number of assumptions on matters such as tax rates, interest rates and the return on the fixed interest securities. While the analysis is obviously dependent on what inputs are used for the financial modeling, the conclusion seems pretty clear to me: if the interest rate on the mortgage is below the long term rate of return (after adjusting for taxes) and your time horizon is long enough, you are better off directing savings to investments and not making early payments on your mortgage.
This is essentially the same conclusion that I wrote about back in February in this series of posts on the returns , the risks and my rather conservative strategy in making additional investments in preference to additional mortgage repayments.
Personally, I prefer equities or real estate to bonds for this purpose as the expected return gap is larger. Obviously circumstances such as tax rates (current and future)and risk appetite are highly relevant. In my own case, while I am happy not to make additional investment in preference to early repayments, I have not taken the logic to its ultimate conclusion and gone for interest only loans.