Continuing on with my ten reasons to use your mortgage to create wealth series, is reason #8.  The bigger your mortgage is, the more money you can invest faster.

Now, keep in mind, I am NOT suggesting that you go out and buy the most expensive home that you can find.  That is a sure fire way to go broke...fast.  What I am suggesting, is that you finance more and put less into the down payment.  Several years ago, this was really easy to do as you could put essentially no money into a property and keep the rest for investments.  It's a little harder these days, but FHA is gaining popularity and you can finance up to 97%.

Let's say you are going to buy a $400,000 home.  You have $100,000 in cash from the sale of your previous home.  Should you put down the entire $100,000 which is a 25% down payment, or should you put down $40,000 down payment which is 10% and invest the remaining $60,000.

By making the large down paymnet you have reduced the principal amount to $300,000.  Let's assume your interest rate is 6% which results in a payment of $1800 for 30 years. Not bad!

By making the smaller down payment, your mortgage principal balance is $360,000. Again, assuming the interest rate is 6%, your monthly payments will be $2160.

The difference between the two payments is $360.  Based on this fact alone, I would even consider the larger down payment. 

But I know better, and here's why:  I would rather invest the $40,000 in one lump sum payment, rather than invest the $360 per month savings for 30 years.  The results are obvious after just one year.  Assuming a 10% return on the investment (for calculation sake), the $40,000 investment is now worth $44,000 where as the $360 per month for 12 months is now worth $4752.

After 5 years, same story.  The larger lump sum is now worth $64,420 where as the $360 per month for the first 60 months is now worth $6,957.  After a full 30 years...well you guessed it, the larger lump sum is by far worth way more than the money put aside every month.  Clearly, the larger lump sum investment wins the race.

Couple this with the fact that money invested in stocks, bonds, mutual funds, etc. is more liquid and easier to obtain than money invested in reducing the principal, and you have a great opportunity on your hands. So when it comes to creating wealth through the use of your mortgage, the smaller down payment wins the race.

Jeff is the founder of Mortgage Wealth, a website/blog dedicated to harnessing the power of your mortgage to create wealth, liquidity, increased rate of return on investments, and to minimize risk.