Even when you get the best deal possible on your mortgage, having those monthly payments loom over your head can be enough to stress out even the most financially sound.
So what happens if you find yourself in a situation with more money than you expected at this point in your life? Should you invest it, spend it, or pay off your mortgage?
Early mortgage repayment is not for everyone, or every situation. However, if you can afford early repayment, there are several benefits for your life and financial situation.
- 1. Net Income Increase
A common reason why people are delaying their repayments is the low interest rate on their mortgage. When your rate is only slightly above inflation, it’s extremely attractive to keep refinancing it indefinitely and use that money for investing. There’s one problem though: the reason that mortgage rates are so low is because investment returns in general are low. Investors across the world are finding that there are few profitable places to put their money these days. Even riskier investments often barely return enough to keep step with inflation. Take a good look at your investments. How many of them produce a return equal to the cost of your mortgage, at no risk? If you look at your mortgage repayment as a form of investment, you might see that putting money into it has a greater and more reliable effect on your income than your investments.
- 2. Fewer Fees
Refinancing a mortgage requires a payment of closing fees. Although refinancing at a lower rate can be attractive, the fees add up over a lifetime.
- 3. Simple Finances
A general rule in life is that more investments means more work. Investing in property, stocks, or even RRSPs can eat up your time by forcing you to go to meetings, watch the markets, and manage your portfolio. Paying your mortgage off can increase your income and free up your time.
- 4. Payment Freedom
Changing careers while under a mortgage is extremely stressful. It is difficult to risk striking out on your own when you have debt to service. Freeing yourself of monthly payments can give you the freedom to pursue your dreams.
Changing careers while under a mortgage is extremely stressful. It is difficult to risk striking out on your own when you have debt to service. Freeing yourself of monthly payments can give you the freedom to pursue your dreams.
Some of these benefits are financial, some are psychological. Both types can greatly increase your quality of life.
