If you lend me $X at 3.5%/yr for 30 years and I can earn 7%/yr elsewhere, like by investing in a S&P index tracker. Say there's no minimum payment on your loan,

If you lend me $X at 3.5%/yr for 30 years and I can earn 7%/yr elsewhere, like by investing in a S&P index tracker. Say there's no minimum payment on your loan, just to keep the math easy. In 30 years, I'm going to owe you 2.8 * X (via 1.035^30). My investment of that $X loan has grown into 7.6 * X (via 1.07^30). After tax, call it 6.5 * X. After I pay you off, I've earned about 3.7 * X. If the initial loan was $400k on a $500k house, then yeah it sucks that I've payed you $1.1M, a clear overpayment, but I wont be sad because I'm coming out ahead by about $1.5M. In reality, loans come with minimum payments, so you can't come out quite so far ahead. What this all means is if you can do something better with your money, (e.g. market tracker at 7% on a 3.5% loan), then just pay the minimum and do that better thing with the rest. If you can't (e.g. market tracker at 7% on an 8% loan), then pay it down as fast as you can, or don't take it in the first place unless there are other factors.