Unit 1 · Level 2 · Pay it off or invest it?
Mortgages and student loans
A 22% card and a 3% mortgage share a word and almost nothing else. Long, low-rate debt is spread over decades, usually has a fixed schedule, and in some countries the interest gets favourable tax treatment. Some student loans are stranger still: repayments tied to income, and a balance that can be written off after a set number of years. The rate is only the first input.
Free to play. No ads, no token, no account needed to start.
What you get asked
Why can a 3% mortgage sit lower on the priority list than a 15% card?
At 3%, the hurdle is low enough that a diversified long-term investment has a real chance of clearing it. At 15%, almost nothing clears it reliably.
Match each feature of a debt to what it does to the case for paying it off early
Rate, term, flexibility and tax treatment all move the answer. A debt that may be written off, or that only takes a slice of income, rewards overpayment least.
Beyond the interest rate, the ___ of a debt matters: a balance spread over 25 years behaves nothing like one due next month.
A long term means small compulsory payments and lots of time for investments to work. A short term means the whole balance lands soon, whatever markets do.
Your mortgage costs 3.5% a year. The long-run average on a broad stock fund is around 7% a year before tax. By how many percentage points does the fund lead?
7 - 3.5 = 3.5 points. That gap is real but it is not guaranteed, and it can be negative for years at a time. A 15% card leaves no such gap to argue about.
The maths favours investing over overpaying a 3% mortgage. Why might someone reasonably overpay anyway?
A spreadsheet does not price peace of mind, and you have to live with the plan for 25 years. Both answers can be defensible. Just know which one you picked. 🐜
The rest of this unit
The one decision that decides where every spare euro goes, and it turns on a comparison most people never make.