Should you pay off the mortgage or invest? Many times in life we find ourselves at crossroads and make tough decisions. However, when it comes to financial matters it can so difficult to make some decisions. The topic on whether to pay off the mortgage or invest has been debated for many years, yet coming to one conclusion has become so difficult. This because there are so many factors to consider before making either of the choices. Besides, we have different conditions and a decision that can work for me might be so costly to you. Simply put, there is no one option that serves everyone perfectly. Each of the options has both advantages and disadvantages. Irrespective of the choice you make, the most important thing is to stick to your decision. Be disciplined enough not to quit along the way.
I want to acknowledge the fact that mortgage payment can be so frustrating and that is why some people may even opt to square it out as early as they can. Others may still decide to deal with it across their life for good reasons. This does not mean investing option is the best option. There are those who may prefer to invest in order to get more funds and help pay off the mortgage. But then a lot of investment decisions fail, or you may need to be patient for so long. Evidently, this is among the toughest decisions you can ever make. Mortgage payments are always made on a monthly basis.
For this reason, a person faced with the decision to either prepay the mortgage or invest has some extra money. The decision on how to spend the money, therefore, depends on the tradeoff between the benefits of paying the mortgage early and not paying. To be of help, am going to give you some sound pieces of advice why you should consider paying your mortgage as well as why you should not prioritize paying it off.
Why you shouldn’t pay Early
Generally, it is good to pay off the mortgage as early as you can afford. It is often sensible in a number of scenarios. Nevertheless, not everyone’s condition is conventional and if you are not considering to repay your mortgage, it is still okay. May be if you can check what you have, prepaying the mortgage isn’t right for you. The following are some of the reasons why it is okay!
• Even if not now, you will, in the long run, pay off the mortgage. Sounds interesting! Even if you are not devoted to paying off the mortgage, it will be settled in the end. This is because mortgages are designed in a self-amortizing way, and so as the monthly payments are deducted, the principal amount gradually lessens up to the point where the loan is entirely extinguished within the agreed period. So what is the point? Even if you decide to accumulate funds, make some investments, or settle other debts, the mortgage will be paid off in the end. However, you have to make the right decisions. If you choose to invest, make sure you do not increase your mortgage obligation.
I do not dispute the fact that prioritizing mortgage payment can be a perfect choice for some individuals. Am pragmatically asserting that not prioritizing its payment can also be a perfect option for others. Are you one of those guys whose financial conditions can be better off by not paying early? Way up your options and make a perfect decision.
• There are some disadvantages prioritizing mortgage payment. Early mortgage payment leads to peace of mind and you save a lot of interests. Even so, the interests on mortgages are often too low. Besides, a section of a mortgage is tax deductible and therefore early payment may not be as beneficial as it may appear at first.
• There is always an opportunity cost. The funds used to settle the dollar can be directed to other financial goals. Because you do not have enough funds, it may be financially insensible to opt for an early mortgage payment. So use the funds to take full advantage of other investment opportunities.
Why you should consider early payment
You took the mortgage because you wanted to be a homeowner. Prioritizing mortgage prepayment is sensible. If you do not settle the loan you will, in the end, lose the home. The following are some more reasons why you should consider early payment of the mortgage.
• One of the most important reasons for early payment is that you get peace of mind knowing you fully own the home. This eliminates doubts and worries regarding foreclosure in case you fail to complete mortgage payments.
• Being debt free is one way of attaining financial independence. The confidence that comes with overall financial independence is important as well. This essentially the case with individuals who despise being in debts.
• You will make a lot of interest savings. By prepaying the mortgage, you will save the interest you would otherwise be required to pay.
• More home equity. Paying off the loan simply mean you are building equity. If at one point you will leave, the value of your home will not be less than what you, unlike when you don’t prioritize payment.
To this end, it is evident that either of the two options can be beneficial. As mentioned at the outset, the decision is based on the tradeoff between the benefits of early payment not paying the mortgage off. But then even investing has advantages and disadvantages in this context. For instance, mortgage interest is relatively low. For this reason, it makes sense to use the funds and invest in something with huge returns. Using the money to settle the mortgage means foregoing some investment returns that can be significantly higher compared to the interest savings you would make by paying off the mortgage. What about the disadvantage side? Well, investments never guarantee returns. In fact, most of the investments with potentially higher returns are often very risky.
Conclusion
Paying or investing – which way to go? Well, in light of the above, neither of the two can be perfect for every condition. Paying or not paying the mortgage early has both advantages and disadvantages and these are the determining factors. If you choose not to pay and invest the money, you will lose the advantages that come with prepaying the loan. Still, investing may have a lot of risks. On the other hand, if you choose to pay, you will lose the benefits of not paying as well as the investment opportunities. For this reason, weigh your conditions objectively and make the decision that suits you. In fact, a blend of the two may be perfect.