The house is 450,000 with 5% down payment, 30 year loan with 3.5% interest. Our plan is to throw extra income at principle initially to remove PMI and then not sure which is the better investment, pay house quickly (under 8 years) or take time on paying the house and direct money towards low cost index funds.
I would definitely prioritize getting rid of that PMI before any additional investing. After that, I generally would max any tax advantaged accounts you have access to (401k, 403b?)
If you max out all tax advantaged accounts and you still have more to throw at either the house or a taxable brokerage account, you get the choice between two very good options! The brokerage account is a little more âaggressiveâ because youâre essentially leveraging your primary home to invest in the more volatile stock market. While paying down the mortgage is more of a âsure thingâ because you guarantee to avoid paying that interest.
IF IT WERE ME, Iâd probably go on the more aggressive side. 3.5% is low. You get an additional tax break on that interest which lowers that effective rate a little more. Plus, if you put ALL your money in your house, youâre not very well diversified⌠your whole portfolio is in one physical piece of real estate. So by extending the mortgage, you actually diversify more into the index funds.
BUT, if you love the idea of no mortgage, and in 8 years having your FULL income to plow into investing or whatever, that is also good. Both are winning. Go with your gut. 
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Hi JeremyâŚyou indicate âYou get an additional tax break on that interest which lowers that effective rate a little more.â What tax break do you get these days if you donât itemize on your federal income tax? Please let me know. Thank you. Bob1
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Thatâs a good point⌠the mortgage interest tax deduction doesnât mean anything for you if itâs not beneficial to itemize. That removes that benefit of more slowly paying the mortgage.
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