What’s The Better Option: Pay Off Mortgage Or Invest?
Pay off mortgage or invest? This is probably one of the biggest dilemmas a middle class person faces. Well, the intuitive and instant idea would be to get rid of your debt. And why not? After all, who would mind to have a financial security and no debt hanging over their head! However, finance and intuition don’t always go hand in hand. Factors like inflation, time-value of money and return on investment play a huge role. So, let’s see which is a better option: pay off mortgage or invest?
Table of Content
- 1 Pay Off Mortgage Or Invest?
- 1.1 What are the important factors to be considered?
- 1.2 Why should you keep your mortgage?
- 1.3 So, what should you do? Pay Off Mortgage or Invest?
Pay Off Mortgage Or Invest?
What are the important factors to be considered?
According to various certified financial planners, a person should consider these six factors.
- The current market value of your home.
- Your mortgage interest rate.
- Home appreciation in your vicinity.
- Your income-tax rate.
- Inflation and your expectations.
- What rate do you expect on investment return?
Each of these factors is responsible to compare varies scenarios between investing and paying off the mortgage early. They help you get a better outlook on your situation. Hence, you can make the right choice. Getting mortgage from the right source is essential. Check out Mortgage Banker vs Mortgage Broker vs Lender Reviews to know more.
When should you pay off your mortgage early?
- You are reckless while investing.
- You belong to a low tax bracket with a high mortgage interest rate.
When should you prefer to invest first?
- You are a vigilant investor.
- You belong to a high tax bracket with low, 30-year, fixed mortgage interest rate.
If this is your first time buying a house, then you should be very careful. Here the Things New Home Buyers Need To Keep In Mind Before Going On A House Hunt!
Why should you keep your mortgage?
Homeowners need liquidity to sustain.
One needs to keep some cash away in case they counter an emergency. Pouring every penny and dollar into paying off your mortgage makes you lose the cash backing. You’re a basically “burying the money in the walls of the house.” If you need short-term loans, you can get one very easily. Check out LendUp Reviews to know more.
There are no effects of mortgage on a home’s value.
Your home’s value is unaffected from the amount of mortgage you carry. It will give returns in the long run, irrespective of the debt you carry.
You believe it or not, mortgage interest is cheap.
How? The value of your home secures the mortgage. Hence, the interest rates are considerably cheaper than those for credit cards and personal loans. Plus the interest you are paying is tax deductible.
Paying mortgage becomes lighter with time.
Yes, a mortgage is a budget stretch, but you must understand that the 30-year fixed mortgage invites the time on your side.
In the long run, investments will better the interest cost of the mortgage.
A 100% stock investment is not advisable. Instead, diversify your investment for a 30-year time frame. The time frame matches the term of a fixed-interest rate mortgage.
So, what should you do? Pay Off Mortgage or Invest?
While investing may now seem a better option, you be careful about debt. Learn to manage your personal finances as there are many people who succumb to debts. You can always try short term investments. Here are The 7 Best Short-Term Investment Plans For You!