Should You Pay Down Your Mortgage? Not When Investments Pay a Higher Return!

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Recently, I was doing some estate planning, and I met with a few experts. I explained everything that I had going on or was into, and it quickly became unanimous that there was little sense in accelerating the payment schedule on any of my existing mortgages.

Paying down one’s mortgage is often advised, so why isn’t that the best course of action for me?

Well, it’s because most of my investment vehicles have been paying a higher return than the fairly low interest rates on my properties have been costing me, especially after taxes.

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Two Deals for the Price of One

I’ve often said, why pay down when you can expand?

If you can borrow money at a good rate, buy a property with positive cash flow, have the tenant pay it back, and you get to write off the mortgage interest, taxes, insurance, repairs, and on top of that, depreciation, this should be a no-brainer, right?

Or you could even borrow the money out of a property at a low rate and then purchase a discounted note with a higher yield, thus making the spread. The real beauty is that this arbitrage is created either by buying the note out of the positive cash flow from renting out the property, by the new borrower’s payment being higher than the payment on what you borrowed, or some combination of the two.


As you can see, you can also then do two deals for the price of one.

For me, over the years, my property values jumped up, and the rent from my tenants went to paying down some of the mortgage balances. Next thing you know, I was able to do either a cash out refinance or I was able to put a second mortgage or line of credit on the properties. With this extra, tax-free money (since it was a loan), I was able to expand my portfolio dramatically by either buying another property, doing a hard money deal, or by purchasing a note for additional cash flow.

That being said, many people don’t realize that there are investments available that pay a higher rate than most interest rates.

Related: Should You Buy More Rental Properties Or Pay Down the Ones You Have?

What Investments Pay a Good Yield?

When it comes to making a higher return than your current mortgage rates, it’s much easier than you think, and there’s really an infinite number of vehicles to do that with, especially if you’re creative.

For example, there’s one guy I know who buys NFL tickets with a self-directed IRA account and flips them out at significant profits that are all tax-free.

Sure, there are the traditional investments like a nice index ETF exchange traded fund, but there are also many alternative investments too, such as a real estate or note fund. You can also do individual notes and mortgages, business loans, and other types of receivables. There are insurance contracts, tax liens, mobile home loans, lease options, flips, equipment leases, structured settlements, billboards, and even other businesses. Maybe it’s a food truck, a recovery house, or even a clean out company. Some of my real estate buddies (who own hundreds of houses between them) have actually purchased their own real estate brokerage office.

So, whether you’re into special needs housing or peer-to-peer lending, there are numerous vehicles available.

What it really comes down to is whether your investments are growing or shrinking — or whether your business is expanding or contracting.


Related: Are Extra Mortgage Payments Worth It? A Look at the Numbers

Maybe you’re thinking that it’s time to simplify things. And so, if you are making the personal decision to pay down debt, that decision may be easier to make when you don’t have many options with safe, higher yields.

Also, if you’re worried about leaving too much debt to your heirs, it also may make sense to pay down your properties, especially if you’ve chosen to forego an insurance policy that could pay off your mortgages in the event of your death.

But if choose instead to earn higher returns than your interest rates, your investment portfolio will start to expand and buy you more, thus truly growing your wealth.

So, let me ask you on BiggerPockets, what other investments do you have that make more sense than paying down your mortgages?

Let me know with a comment!

About Author

Dave Van Horn

Since 2007, Dave Van Horn has served as president and CEO of PPR The Note Co., a holding company that manages several funds that buy, sell, and hold residential mortgages nationwide. Dave’s expertise is derived from over 30 years of residential and commercial real estate experience as a licensed Realtor, a real estate investor, and a fundraiser. As the latter, Dave has raised over $100 million in both notes and commercial real estate. In addition to his investments and role as CEO, Dave’s biggest passion is to teach others how to share, build, and preserve wealth. He authored Real Estate Note Investing, an introduction to the note investing business, helping investors enter the “other side” of the real estate business.


  1. Steve Vaughan

    I was following along until flipping NFL tickets inside an IRA was ! mentioned as an alternative investment option. Why not just buy the tickets, you know, with regular! money? Even $20k worth wouldn’t make some of us flinch.
    I’m glad you acknowledged that paying down debt may make sense for some. I have some older mortgages with higher rates (but not worth $4k in refi costs) and others where a little acceleration loses the PMI at $75 per $100k/mo. Risk free and tax free.
    Never be surprised when ‘advisors’ don’t recommend paying down debt. No commissions or way for them to monetize that. Thanks for sharing, Dave!

    • Dave Van Horn

      Hi Steve,

      Thanks for commenting.

      Well my friend who I was referring to actually bought a Stadium Builder License in his IRA as well as tickets. This license is required to purchase many of the best lower level, club level, and upper level seating areas at Lincoln Financial Field in order to become a season ticket holder for the Philadelphia Eagles. An SBL owner has the right to purchase season tickets for their seats each year and resell them. He does this for over 60 seats and the price per seat can actually range anywhere from $60 to almost $100K per season.

      So the reason I mentioned this investment is because it’s long term return that’s more than likely giving an investor over 100% Rate of return re-selling tickets plus he can flip the license itself for a profit (all tax free in his IRA which elevates this return).

      I definitely think paying down debt makes sense in certain instances, like with you on the PMI loan. I have a similar scenario to that where if I pay off the mortgage for a rental of mine, I will actually save money since I won’t have to pay the flood insurance that is required (the premium for which has been eating into my return).


      • Steve Vaughan

        Thanks for better explaining the SBL thing. For me it detracted from your message, but it is interesting.
        Yes! Great point about the flood insurance. It won’t be mandatory without a mortgage either. Sounds like another $200/mo savings if your not actually in a flood zone!

  2. Katie Rogers

    Great advice, BUT be careful you do not create a house of cards where a serious problem (for whatever reason) with one mortgage snowballs to put the whole system at risk. I know an investor who ostensibly pays all cash for each property, but the fact he borrows on the most recent acquisition to get the cash to buy the next one. Thus, every property is linked to every property. It is quite risky.

    • Dave Van Horn

      Hi Katie,
      Is he purchasing the properties with cash to fix them up and then refinance? If so, and if he has reserves and a decent loan-to-value, it may not be as risky as you might think. For me, most of my HELOCs go to purchasing notes, as they are very liquid and can be sold very quickly. As for my properties, they were mostly purchased with OPM (other people’s money), and then I fixed them up and refinanced, which creates an infinite rate of return with no capital exposure.


    • Dave Van Horn

      House of cards is one of my favorite shows! Hopefully, there will be another season soon.
      You are correct that the DOW is up, although most of my investments are secured by collateral and less impacted by stock market conditions.

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