You are Here > Home > Property > Pay off your mortgage or invest?

Pay off your mortgage or invest?

Jun 9, 2016

Should you throw all your spare cash into paying off your mortgage before even thinking about investing?

mortgage or investAs most mortgage repayments are set over a 20-year period, we looked at three possible scenarios in terms of accelerating mortgage repayments and investing in equities (shares) over a 20-year period.

In each of these scenarios we assumed a R700 000 mortgage at the current prime interest rate of 10.5% with a minimum monthly mortgage repayment of R7 000 per month. We also assumed that the individual had an additional R3 000 per month to invest.

Scenario one

Pay additional R3 000pm into mortgage

You increase your mortgage by R3 000 to R10 000 per month and your house is fully paid off in 108 months (9 years). You then invest the R10 000 per month into a pure equity unit trust for the remaining 11 years.

After 20 years you have a R2.8 million investment

Scenario two

Split the R3 000 between mortgage and investment

You pay an additional R1 500 into your mortgage, increasing the repayment to R8 500 and invest R1 500 into a pure equity unit trust. Your total monthly commitment is R10 000.

For this scenario we assume you receive a return of 12.4% which is the average historical longer-term return of the JSE.

After 12 years (145 months) your mortgage is paid off and you have R500 000 in investments. You now allocate the full R10 000 to the investment for the remaining 8 years.

After 20 years you have a R2.9 million investment.

Scenario three

Invest the full R3 000 per month

You invest the R3 000 into a pure equity unit trust. Again in this scenario we assume a return of 12.4% on the investment.

You only pay your minimum mortgage payment of R7 000 per month and settle your mortgage after 240 months (20 years). You invest R3 000 per month into a pure equity fund for 20 years.

After 20 years you have a R3.16 million investment


Based on these three scenarios you would be better off investing rather than accelerating your mortgage repayments. The results, however, depend on the relative difference between interest rates and projected equity returns.

In our current interest-rate environment, there is a 190 basis point difference between interest rates and the longer-term returns from the JSE. If interest rates were to rise, that difference would narrow and the relative benefits of investing would be reduced. There is also a risk of lower investment returns. Possibly the best scenario is to find a balance between investing and paying off your mortgage.


This article first appeared in City Press.


Maya Fisher-French author of Money Questions Answered

Previous Articles

What is screen scraping and is it safe?

Screen scraping can be used by criminals to steal data, but financial services companies are increasingly making legitimate use of this too. Angelique Ruzicka investigates what the process entails and how consumers can protect themselves. Screen scraping can be hugely...

Listen: Creating a passive income with shares

In this podcast, Maya (@mayaonmoney) chats to money blogger Brett (@ETFenthusiast) on how blogging helps keep him on track financially, his plans in working towards financial freedom, and which investments he is using to provide a passive income in the future.

You don’t need a lot of money to start investing

Many people feel they need to have a lot of money in order to start investing. In fact, the opposite is true. Investing small amounts every month actually provides the best risk-return scenario when it comes to longer-term investing. Investing via a monthly debit...

Retirement planning is not a once-off event

Jaco Prinsloo, Wealth Manager at PPS Wealth Advisory, has some sensible advice around retirement planning. As a wealth manager, I have observed that there are two typical clients. Some dread retirement, while others look forward to it. Those who dread it are the ones...

Are banks putting customers first?

Banks were in the spotlight recently with the release of the annual report by the Ombudsman for Banking Services (OBS) and feedback from the Financial Sector Conduct Authority (FSCA) regarding the banks’ adherence to the Conduct Standard. The draft Conduct Standard...

Should women celebrate community of property rights?

There has been much celebration around the protection of women in customary marriages with President Ramaphosa recently signing into law the amended Recognition of Customary Marriages Act. However, are these women fully aware of the implications, especially around...

Five tax myths many employees still believe

Tanya Tosen, Tax and Remuneration Specialist at Remuneration Consultants, addresses five tax myths that have become popular over the years. Many employees don't understand the complex tax calculations that payroll applies to their earnings each month and often...

How to save on home loan insurance

When applying for a home loan, the bank will insist that you take out home loan insurance to cover the repayments in the event of death, disability, or retrenchment. Evelyn Doubell, Private Wealth Manager at NFB Wealth Management finds that it’s usually cheaper to...

Relief for struggling restaurants

Soft loans and payment holidays are available for restaurants still battling to survive the pandemic. At the beginning of May, my favourite local coffee shop closed its doors after 20 years of trading. My neighbourhood shopping centre, which caters to many “mom and...

Money and divorce

David Thomson, Senior Legal Adviser at Sanlam Trust, shares some practical tips about the financial side of divorce. The news of Bill and Melinda Gates filing for divorce after 27 years of marriage sent shockwaves through the philanthropic world. The couple is worth...

Pin It on Pinterest

Share This