So you want to buy a house? And you've just come into a chunk of money? Lucky you! That lotto ticket finally paid off, or maybe you were remembered fondly by your Uncle Luke. Either way, now you're faced with a crucial decision. Do you put the money into the house to save on that 30 years' worth of interest payments, or do you sock the money away and pay the mortgage month by month?

Let's look at both options using some round numbers to make the comparison easier. Let's assume that you've just come into $100,000 and the portion of the house you're considering financing is $100,000 at a current mortgage rate of 7.5%. On a 30-year mortgage of $100,000 at 7.5%, your monthly payment for principal and interest will be $699.

Option One: Sink your $100,000 into the house. You figure out that paying $699 a month for 30 years means you'll be paying $251,640 to your bank over the 30 years for a $100,000 stake in the home. And since your Uncle Luke has been generous enough to leave you $100,000, you can't bear to pay that much to your banker in interest. So, you decide to pay the $100,000 now and get your deed right away.

But you're no dummy. You know that you'll still need to save for retirement. So, what if you sock away that $699 a month for the next 30 years. After all, you won't have a house payment, so why not take advantage of the situation and make yourself filthy rich in the process? You decide to take the $699 every month and invest it in an index fund which averages 11% a year. At the end of 30 years, your $699 monthly investments will have grown to $1,960,359. In 30 years, then, you've got a house and $1.9 million dollars. Not bad!

Option Two: But what if you decide to invest the $100,000 and simply pay the $699 a month to your banker to pay off the mortgage? You'd be making the same monthly payment, so at the end of 30 years, you'd have the same house and you'd have paid the same in monthly deposits. Only this time, you're not adding to your investment account; you're just letting the original $100,000 grow.

Assuming you put the $100,000 in the same index fund which averages 11% a year, your portfolio at the end of 30 years would be worth $2,289,230. That's $328,871 more than you would have had by investing the $699 monthly payment and paying the house off early.

And if you're Foolish enough to invest in a portfolio that averages better than the market average of 11%, the difference between the two options grows even more dramatic. If you average 20%, for example, paying off the house early and investing the $699 a month would give you $16.1 million after 30 years. Leaving the $100,000 alone for 30 years at 20%, though, would grow to $23.7 million!

The point of all this, of course, is that paying interest isn't always the wrong choice to make. What it really comes down to is what interest rate will you be paying and what interest rate can you get from your investments. If you can make a higher return from your investments than you're required to pay your banker, you will actually lose by paying off the loan early. There's a psychological freedom, of course, to paying off a debt, but in the face of greater wealth later, I can forego that particular joy each month as I write out my mortgage check. As long as my portfolio keeps growing at a rate faster than the one I'm paying the bank, I'm actually *making* money by paying that dreaded interest! Thanks Uncle Luke!