So technically, if you were going high risk portfolio you *could* earn 8% annual return (this is actually not unheard of as compared to others that claim they get 20-30%) however, in this case future value calculations are your friend.

To skip over the boring technical and mathematical reasons. If you want to risk it with 8% returns, you can still earn 1.2% (assuming the rates increase to 6.8 on july 1st) or 4.6% the way they are currently. A more moderate portfolio can bring you down to 6%, which as long as they stay at 3.4%, still gives you a profit of 2.6%.

A lot of this does depend on your willingness to accept debt. In addition, paying MORE than the required fixed schedule does help reduce the cost of interest in the long run. This is the reason you should ALWAYS pay more than the "suggested payment" on mortgages (one you save money, two you pay it off sooner). This does mean that you have to live with less money, but a simple trick to make it not seem like that is to do Direct Deposit and pay yourself first.

That means you make automatic deductions for IRA/401k and some more for personal savings and the like. You'd be surprised how easy it is to spend money when you know its there vs. it being removed automatically and just that little bit more of effort to get at it makes it less enticing.

The fixed payment of interest is a bad idea. You will always be paying the same fixed amount and the interest amount will never decrease PLUS the principal is waiting for you at the end of the payment period to be paid in full. You always want to amortize the loan over the life of the payment period to ensure that you pay off interest plus a little extra each month towards reducing the principle.

To do the calculations yourself, use excel and figure out how to use future value and net present value calculations to come to a payment level that you feel comfortable with based on assumptions of return v. risk (interest going up, probability of low return, etc.).

Keep in mind I'm not a registered public financial adviser and the above is only the opinion of a student working on his MBA.