too often the "i can generate greater returns than current mortgage rates" argument is used to justify people taking on a mortgage, borrowing against equity, or not paying down an existing mortgage. but i'm still waiting for an explanation of how a mortgage is considered investment leverage to begin with. it's an expense, pure and simple. the quicker you get rid of that expense, the better off you are. leverage is only beneficial if you can put the total sum of your principal and debt to work, i.e. it increases your earnings power.
now if you could take 100k and a bank would loan you 400k to do with as you please, that's what i would call the power of leverage. it's using debt to earn on a higher basis amount than your own principal would allow. you're earning on 500k and owing on 400k, nevermind the rate of return vs cost of debt.
but in reality it's more like this: you lock up your 100k completely, borrow 400k, owe on 400k. and then you are left to either earn returns on whatever you have left over after paying off the debt or put it toward paying down the debt. in this scenario i fail to see how the debt has increased your earnings power. we're taking about returns you can make on $500 per month and ignoring the $2000 per month beast in the room. as IR and graph pointed out, slaying the beast first comes out to your advantage more often than not.
of course, the missing part of the puzzle is you that the debt allows you to live in a house you could otherwise not afford. that's where the power of the leverage is going. so i think the whole argument is moot. love the house that you live in and forget the arbitrage!
