One of the more interesting conversations I have with clients isn't always about which mortgage rate they should take.

Sometimes, the bigger question is: How much money should you actually put into your home?

For many Canadians, the answer seems obvious. If you have the money, put it into the house. A larger down payment means a smaller mortgage, lower monthly payments and less interest paid over time.

And there is certainly a lot to like about that approach.

But what if you also have a substantial investment portfolio that has been performing very well?

Is it always better to take money out of your investments and put it into your home?

Not necessarily.

A real-world example

I recently had a client situation that illustrates this perfectly.

The client purchased a home worth $900,000. He had enough available capital to put down 50 per cent, or $450,000.

Instead, he chose to put down 20 per cent — $180,000 — and keep the other $270,000 invested.

His reasoning was straightforward. His investment portfolio had averaged approximately 23 per cent annually over the previous three years, and he believed the potential long-term growth of keeping that money invested outweighed the benefit of putting another $270,000 into his home.

At first glance, the numbers certainly make the decision interesting.

But before anyone sees a 23 per cent return and thinks this is an easy decision, there is an important point to make.

A 23 per cent average annual return is an exceptional historical result. It is not a guaranteed return, nor should anyone assume that a portfolio will continue producing 23 per cent year after year.

Many investments and portfolios don't come close to that level of performance.

That's what makes this decision so personal.

The case for putting more money into the house is that there is something very satisfying about paying down a mortgage.

When you put an additional dollar into your home, you are reducing the amount you owe and, in turn, the amount of interest you will pay.

Unlike an investment return, the savings from paying down your mortgage are much more predictable.

Let's say, for example, your mortgage rate is 4 per cent.

Putting $100,000 against that mortgage effectively saves you the interest you would otherwise have paid on that $100,000, subject to how your mortgage is structured and how long you keep the debt.

A larger down payment can also mean:

• A smaller mortgage balance.
• Lower monthly payments.
• Less interest paid over time.
• More equity in your home from day one.
• Less financial stress for people who prefer carrying less debt.

For someone who values certainty, paying down debt can be an excellent financial strategy.

There is also an important Canadian mortgage consideration: 20 per cent is a significant threshold. Generally, a down payment of less than 20 per cent requires mortgage loan insurance, while 20 per cent or more allows you to obtain a conventional mortgage.

Once you've reached that 20 per cent threshold, however, the conversation can become much more interesting.

The biggest advantage of keeping some money invested is liquidity and diversification.

Your home is an asset, but the money tied up in your home isn't particularly easy to access. If you put an additional $270,000 into the property, that money becomes home equity.

If you leave that $270,000 invested, it remains part of your financial portfolio and may continue to grow. Depending on the investments, you may also have the ability to access some of that capital if circumstances change.

In my client's example, $270,000 is a significant amount of money.

If that money were to earn 23 per cent in a particular year, the gain would be approximately $62,100.

Compare that with a 4 per cent mortgage.

A 4 per cent cost of borrowing on $270,000 would represent approximately $10,800 of interest in the first year, before considering how the mortgage balance changes through payments.

On the surface, that makes keeping the money invested look very attractive.

But there is an important catch.

Investment returns are not guaranteed.

The mortgage rate represents a cost you can calculate. Your investment return is uncertain.

Your portfolio could earn 23 per cent. It could earn 5 per cent. It could earn nothing. It could also lose money.

That's the trade-off.

Don't confuse a great three years with a guaranteed future

This is probably the most important point I'd make to anyone considering this strategy.

Past investment performance is not a promise of future performance.

My client's portfolio averaging approximately 23 per cent over three years is impressive. But three years is a relatively short period when you're making a decision that could affect your finances for decades.

Markets go through good periods and bad periods.

A portfolio that has performed exceptionally well can experience a significant downturn.

And unlike your mortgage payment, you can't count on your investment portfolio producing a specific return next year.

That's why I would never tell a client that keeping their money invested is automatically better than paying down their mortgage.

It isn't.

There is also something to be said for peace of mind.

Personal finance isn't just about spreadsheets.

Two people can look at exactly the same numbers and make completely different decisions — and both can be making perfectly reasonable choices.

One person may look at a $450,000 mortgage and think, "I want that debt as small as possible."

Another may look at the same mortgage and say, "I'm comfortable carrying the debt because I want to keep my investments working for me."

Neither person is necessarily wrong.

Your income, job stability, age, investment risk tolerance, tax situation, other debts, retirement plans and overall financial picture all matter.

And perhaps most importantly, your ability to tolerate risk matters.

If seeing your investment portfolio fall 25 per cent would cause you to panic and sell everything, keeping a large amount invested simply because it has performed well recently may not be the right strategy for you.

There is a middle ground

It doesn't have to be an all-or-nothing decision.

You don't necessarily have to put either 20 per cent or 50 per cent down.

You might choose 25, 30 or 35 per cent, for example, while keeping some money invested.

That can provide a balance between reducing mortgage debt and maintaining investment exposure.

The right answer depends on the individual.

For some people, the predictable benefit of reducing debt will be more valuable than the potential investment gains.

For others, particularly those with strong cash flow, a long investment horizon and a diversified portfolio, maintaining investments while carrying a larger mortgage may make more sense.

So, what's the right answer?

As a mortgage broker, my job is to help clients understand the mortgage side of the equation. I can show them how different down payments affect their mortgage amount, payments and borrowing costs.

But I don't believe there is one universal answer to the question of whether you should put 20 per cent down or 50 per cent down.

The client with the $900,000 home made a decision that made sense for his particular circumstances. He chose to put $180,000 down, keep approximately $270,000 invested and accept the investment risk that came with that decision.

His portfolio's approximately 23 per cent average return over the previous three years certainly makes the decision look good in hindsight.

But hindsight is a wonderful thing.

None of us knows what the next three years will look like.

The lesson isn't that you should keep your money invested because investments can outperform your mortgage.

The lesson is that your home equity and your investment portfolio are two different pieces of your overall financial picture and deciding how much to allocate to each deserves careful consideration.

A larger down payment can provide certainty, lower debt and peace of mind.

Keeping money invested can provide liquidity, diversification and the potential for greater long-term growth but with substantially more uncertainty.

There is no magic percentage that works for everyone.

Disclosure: I am a mortgage broker, not a financial planner or investment advisor. The investment example above is based on an individual client's historical experience and should not be interpreted as a forecast or recommendation. Investment returns vary, and not all investments or portfolios perform anywhere near this level. Before deciding whether to put more money into your home or keep it invested, you should speak with your own qualified financial advisor or financial planner to determine whether the strategy makes sense for your individual circumstances.

Sometimes the best mortgage decision isn't simply about getting the smallest mortgage possible.

It's about finding the balance between debt, investments, risk and peace of mind that works for you.