Taking out a mortgage is one of the biggest financial decisions you will make in your lifetime. While having a mortgage gives you the ability to purchase a home that you may not be able to afford outright, it also means that you will have a large debt hanging over your head for many years. Whether you should pay off your mortgage early or invest the money elsewhere is a common question for property buyers.
In this post, we’ll look at a comparison of both options so you can make an informed decision. Keep in mind that everyone’s financial situation is different, so be sure to consult with an expert (further discussed in this article) before making any major decisions.
Advantages of Paying off your Mortgage Early
One benefit is that you will save on interest payments. The longer you have a mortgage, the more interest you will pay, since most mortgages have compound interest. This can add up to thousands of dollars over the life of the loan.
Another advantage of paying off your mortgage early is that you will have more financial freedom and security. Once your mortgage is paid off, you will no longer have to worry about making monthly payments or being at risk of foreclosure if you fall behind. As a result, paying off your mortgage early can provide peace of mind and financial stability.
A prominent advocate of paying off your mortgage early is Dave Ramsey. Here is a video of Dave taking a call, explaining that paying off your property later is a huge risk:
Advantages of Keeping your Mortgage
On the other and, there are a number of reasons why it makes more financial sense to keep your mortgage. For one thing, a mortgage is considered “good debt” by many financial experts, which means that it can actually help to improve your credit score. If you invest wisely, you can ensure you are cash flow positive, so that that rental income is higher than your repayments.
Having a mortgage for a longer time gives you the opportunity to invest your money in other ways, such as stocks, mutual funds or even another property. This could also potentially give you a higher return than the interest you’re paying on your loan.
Additionally, the interest on your mortgage is tax-deductible, which can save you a significant amount of money each year.
Kris Kohn is a an outspoken expert on real estate debt and he believes that paying off property debt is not the best investment strategy as explained in this video:
In short, there’s no single answer when it comes to whether or not you should pay off your mortgage. Ultimately, it depends on your individual financial situation and goals.
Getting the best advice
Regardless of which mortgage strategy you use, you need to decide if you will go it alone or seek out expertise. Most property investors achieve the best investment outcomes with the help of a property expert. You could consult with your local real estate agent, but an even better option is to use a buyers agent, who works on your behalf to achieve your real estate income goals. A buyers agent can provide personalised advice based on your individual circumstances and work with you every step of the way from setting goals and prospecting properties, all the way to exchanging contracts and organising your insurance.
However if you do decide to do it on your own, you will want to conduct extensive research. There are a few key things to look into when you’re researching property. First, check out the crime rates for the area. You can find this information online or by talking to the local police department. Safety is a very important factor, so you’ll want to avoid areas with high crime rates. Next, take a look at the schools in the area. If the new resident has children, or is planning on having children, good schools in the area is ideal. You can find test scores and other information about schools online. You will also want to factor in demographics and whether interest rates are likely to increase. Finally, research the property itself. Make sure to get a home inspection before you buy, and be sure to ask about anything that concerns you. By doing your research before you purchase property, you can be sure that you’re making a wise investment.