Is it Better to Be Debt Free?
When it comes to your mortgage, you may be wondering if it’s better to pay off your mortgage as fast as possible and be debt free or if it’s better to invest. The answer is complicated, and it depends on your financial situation and long-term goals. While paying off your debt reduces how much interest you pay, you could create more wealth by taking on more debt by buying an investment property.
Benefits to Paying Off Your Mortgage
It is always a good idea to reduce your mortgage debt. With a 30-year $500,000 mortgage and a 4% interest rate, you’d be paying almost $360,000 in interest. Paying extra on your mortgage every month not only allows you to shorten the length of your loan term but also saves you thousands of dollars in interest. Other benefits of paying off your mortgage sooner include:
- Allowing you to save more of your money
- Enjoying the financial freedom that comes with being debt free
- Not having to worry about making your repayments
- The less debt you have, the more equity you have in your home.
Benefits of Purchasing an Investment Property
While paying off your mortgage sooner does have benefits, there are also benefits to borrowing more money and investing in an asset, such as a property that allows you to generate more wealth. Not only does buying an investment property allow you to produce additional income from rental, but you can also enjoy tax benefits and a capital gain when you sell the property. In addition, the best time to pay off our mortgage sooner is at the beginning of the loan term. Paying extra early on is more beneficial than paying more later on due to compound interest. If you’re 20 years into your loan term, it might be more beneficial to invest in another property rather than paying off your mortgage sooner.
At Mortgage House, our team of financial experts can help you decide whether it is more beneficial for you to be debt-free or for you to invest your money in another asset.