Putting an extra $200/mo into rental mortgage vs S&P 500: $103,280 interest saved bre

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Putting an extra $200/mo into rental mortgage vs S&P 500: $103,280 interest saved bre

Tomas Jems

Technology · NY · Member since 2026 · 27 posts · 9 votes

Curious to get the community's perspective on paying down rental debt vs redeploying cash flow.

I ran the numbers on a $400,000 30-year fixed loan at 6.75%:

Adding just $200/month in extra principal curtailment:

• Eliminates $103,280 in total interest paid.

• Shaves 5 Years and 4 Months off the loan term.

That’s an immediate, guaranteed, risk-free 6.75% return on capital without landlord headaches.

On the flip side, some argue that leverage is the entire point of real estate and that $200/mo should compound in an index fund or stack toward the next down payment.

Detailed interest payoff schedule & calculator here:

https://smartmortgagecalc.space/blog-extra-payments-save-100k

Do you aggressively pay down your rental mortgages, or keep max leverage?

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Jules Aton
MD/DC · Member since 2024 · 1k+ posts · 1k+ votes
14h
Today's interest rates make it less of a no brainer because there is some value in a guaranteed return however being too equity heavy in RE ties up your money and can result in loss of significant gains in the stock market. I haven't ever held a property longer than 18 years so that also changes your predictions. I prefer both. Over the past 7 years my Vanguard taxable which is VTSAX, VTI and VOO is up 17.3% and that is true passive investing.
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Theresa HarrisPro Member
Member since 2019 · 15k+ posts · 11k+ votes
14h
It depends on your longer term goals. If you want to buy more rentals, then investing it elsewhere may be a better idea as you can pull it out and use it as a down payment later. If you don't have plans to buy more rentals, and interest rates are higher, paying it down is not a bad idea. With house prices where they are at in my area and my 5 year plans, I decided it made more sense to pay down some of my mortgages. I have two that should be paid off in the next couple of years which fits with my retirement plans.
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Divin KanyamaBusiness Member
Accountant · Seattle, WA · Member since 2025 · 391 posts · 152 votes
13h
@Tomas Jems This is a great question because both approaches can make sense. Paying extra on a 6.75% loan creates a strong, predictable return and can meaningfully improve future cash flow—especially when the property is already performing well and reserves are solid.
At the same time, liquidity has real value. Once cash goes toward principal, it is tied up in the property and may be more difficult or expensive to access later. The comparison should also account for the loan’s after-tax cost, the realistic after-tax return of the alternative investment, and the added risk that comes with pursuing a higher return.
A balanced approach may be the sweet spot: keep healthy reserves, continue saving for worthwhile opportunities, and use the remaining surplus to pay down higher-rate debt. When attractive deals are limited or reducing risk is the priority, extra principal payments look especially appealing. When a strong opportunity comes along, having cash available can be just as valuable. It does not have to be all leverage or no leverage—the best choice is the one that keeps the portfolio both growing and resilient.
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Len P.
Westchester, NY · Member since 2019 · 26 posts · 10 votes
1h
Tomas, thanks for sharing this question, which is one I think about a lot.
If you put $200 in extra principal towards your mortgage payment, my understanding is that you see the benefit of that at the end of the loan when the loan is paid off earlier but that your monthly loan payment does not change in the meantime. Is that right?
If that is correct, then I always thought it would make sense to put the $200 per month in some sort of investment vehicle that earns interest over time and then when it gets large enough to pay off the loan balance, pay it off then.
For me a big consideration - in addition to liquidity that Divin mentioned - is concentration risk. While paying off the loan decreases default risk and increases cash flow, it also increases my equity position in real estate. By investing in something else, I hopefully create similar cash flow while better diversifying my income and equity.
Good luck!
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