Lets consider the scenarios with real world numbers. I will consider 3 scenarios. All scenarios are for a $100k house
Scenario 1 uses the big mortgage paid out over long term. Owner pays takes out loan for $80k loan on house putting $20k down and investing $80k for the mortgage term of 30 years:
20,000 down
80,000 invest @ 7% = $608,890 ROI over 30 years
80,000 loan for 360 payments = $174,995 payments on house after 30 years @ 4% interest
486.10 monthly payment
Scenario 2 uses the small mortgage paid out over long term. Owner pays takes out loan for $20k loan on house putting $80k down and investing $20k for the mortgage term of 30 years:
80,000 down
20,000 invest @ 7% = $486,709 over 30 years adding $287 monthly (difference between monthly payment in scenario #1 and this one.)
20,000 loan for 360 payments = $71,873 payments on house after 30 years @ 4% interest
199.65 monthly payment
Scenario 3 uses the small mortgage paid out over short term. Owner pays takes out a 15 year loan for $20k loan on house putting $80k down and investing $20k for a term of 30 years:
80,000 down
20,000 invest @ 7% = $504,295 over 30 years adding $234 monthly for the first 15 years, then $486 monthly for the last 15 years (difference between monthly payment in scenario #1 and this one.)
20,000 loan for 180 payments = $45,378 payments on house after 15 years @ 4% interest
252.10 monthly payment
In a market with low interest like the one we are in right now. It makes sense, but when the interest rate rebounds to 6-8%, the model starts breaking when you consider risk vs reward. Earning a straight 10% ROI, it works, but the market is going to cycle at least 4 times during the 30 year period and you won't get a constant 10% interest on your investment. Below are the numbers with 7% house interest and 10% interest on investment:
Scenario 1 uses the big mortgage paid out over long term. Owner pays takes out loan for $80k loan on house putting $20k down and investing $80k for the mortgage term of 30 years:
20,000 down
80,000 invest @ 10% = $1,395,952 ROI over 30 years
80,000 loan for 360 payments = $229,107 payments on house after 30 years @ 7% interest
$636.41 monthly payment
Scenario 2 uses the small mortgage paid out over long term. Owner pays takes out loan for $20k loan on house putting $80k down and investing $20k for the mortgage term of 30 years:
80,000 down
20,000 invest @ 10% = $1,172,063 over 30 years adding $399 monthly (difference between monthly payment in scenario #1 and this one.)
20,000 loan for 360 payments = $85,401 payments on house after 30 years @ 7% interest
$237.23 monthly payment
Scenario 3 uses the small mortgage paid out over short term. Owner pays takes out a 15 year loan for $20k loan on house putting $80k down and investing $20k for a term of 30 years:
80,000 down
20,000 invest @ 10% = $1,188,266 over 30 years adding $352 monthly for the first 15 years, then $636 monthly for the last 15 years (difference between monthly payment in scenario #1 and this one.)
20,000 loan for 180 payments = $51,107 payments on house after 15 years @ 7% interest
$283.93 monthly payment