Should I Pay Off My Mortgage Early?
Should I pay off my mortgage early? Before you do, consider all of your financial options in this article before your do so.
While being debt-free is always a good goal, record low interest rates in Canada may make you stop and wonder whether paying off your mortgage earlier is a good idea at this time. After all, isn’t there better ways to use your money if the interest rate on your mortgage is negligible? The answer depends on your personal financial situation.
Look At Available Investment OPPORTUNITIES
Sure, if you are a responsible person who is dedicated to monthly contributions to investments, putting your extra dough into something like stocks, bonds, mutual funds or an ETF may make perfect sense. That is, of course, if you actually do it. These types of investments have higher returns and your money can grow quickly. The problem is that many people find it far too easy to spend their extra money on a new cellphone, that expensive jacket they’ve been staring at for months, or that last minute trip to Cancun that’s so cheap they just can’t pass it up.
High Interest Debt
If you already have a lot of credit card debt, you may want to pay those bills off first and that makes sense too. Once again, you can just as easily spend your extra money so it never makes it onto the Visa bill. Now you have no extra money, high-interest debt and you still have a mortgage balance.
If you are good with money, sound investments can earn you more money. When you buy a house for $250,000 house with 20% down ($50,000) your monthly mortgage payments at 4.25% on $200,000 over 30 years are around $984 per month. Over 30 years you’ll end up paying almost $355,000 to pay for the $200,000 mortgage.
If you invest the $200,000 instead, you could earn as much as 9% on the stock market. If the interest rate remained stable you could generate $3 million after 30 years in investment income. Naturally, investments do involve risk and there is no guarantee that interest rates will be stable throughout the investment period. You should consult a professional investment adviser before making any decisions. You need to ask yourself why more people aren’t well off if it’s really that easy?
Leveraging Real Estate
The truth is that buying a home is a great way to “leverage” your money. Leveraging is when you buy and use someone else’s money to do it. In our example, your down payment is $50,000 on a property worth $250,000. You are leveraging the lender’s money to buy the property. When the value of your property goes up, you really gain. Let’s say your property value goes up 4%. This means your home is now worth $260,000, and that’s a 20% increase on your original investment ($50,000 x 20%=$10,000).
Paying Off Your Mortgage Early
If you are the conservative type, investing in your mortgage is the perfect way to do so without risk and it yields guaranteed results. Perhaps you want to get the mortgage out of the way for an early retirement or you just don’t like the burden of your monthly payments. Once your mortgage is paid off you can concentrate on serious investing with more monthly income to contribute.
If you have questions about your mortgage and the different financing options available to you, speak to one of our mortgage professionals today for a free consultation. They are dedicated to your success and governed by a code of ethics which promises current and accurate information so you can make an informed decision.