OK, have it your way. Here's a spreadsheet to compare a loan+investment with simply saving the payments. I changed the payment from a nice round $1000 to $1010.

OK, have it your way. Here's a spreadsheet to compare a loan+investment with simply saving the payments. I changed the payment from a nice round $1000 to $1010.24 so that the loan would be paid off in exactly 14 periods. On the left, you see the investment grow while the loan is paid down. On the right, you see an account grow as you add $1010.24 to it each time and collect 5% interest on the balance. They reach the same value at the end. https://docs.google.com/spreadsheets/d/12NGCBeup3rCygMsSbcOnNGCtFhUChMeFawCK5UboQig/edit?usp=sharing https://docs.google.com/spreadsheets/d/12NGCBeup3rCygMsSbcOn... As for the origin of mortgage money, you're forgetting about the secondary market. Lots of loans originated by banks get bundled up and sold off. That's a very lucrative business for some banks, because they can collect fees for the origination and get their money back right away with no risk.