At Home Loan Cash Back, when you sign up for a mortgage with us, we ask you to commit to that mortgage for a period of two years. However, after a few years, you might be lucky enough to discover that you can pay off your home loan ahead of time. Perhaps you’ll win big on a scratch card, or get an incredible opportunity at work. If such a situation happens, do you know whether it’s a good idea to pay your mortgage off early?
Most experts tell you that it’s crucial to pay off your home loan as quickly as possible, and there are many advantages to being loan free. You save money, and you avoid interest that you would have to pay if you continued with your loan.
So, does it make sense to pay your mortgage off early?
Here are some questions to help you decide.
1. Do you Have More Expensive Debts to Deal with?
When we talk about “expensive debts”, we’re referring to anything that will cost a lot to pay off over time thanks to interest rates. For instance, credit cards often charge a high rate of interest, and therefore should be paid off as quickly as possible.
Other examples of “expensive” debts might include unsecured loans, where your interest rate might be much higher than the cost of your mortgage rates. Generally, if you have more expensive loans to worry about, you should think about paying them off first, before you address your mortgage.
2. Should you Invest Instead
One alternative to paying off your mortgage if you end up with a large lump sum of money, might be to look for ways that you can help that money grow, by investing it, instead of spending it straight away. For instance, you could invest in a real-estate portfolio that helps you to make more money in the long-run. That way, while you’ll still be paying your mortgage, you’ll be earning money that helps you to fund those repayments, as well as many other things in your life.
It’s worth thinking about the various options that are available to you in terms of investment opportunities before you decide to simply pay off your mortgage straight away. After all, you want to make your money go as far as possible.
3. Could You get a Rate of Savings Higher than your Interest Rate?
When you’re thinking about paying off your mortgage with a lump sum, it might make more sense to put your extra money into a savings account instead. After all, if you pay off your mortgage early, you might have to deal with things like exit fees. On the other hand, if you can find a savings account where you’ll earn more than you’re paying on your home loan interest, the results could be significant.
Ultimately, you need to think about how you can take the step that’s most effective for you financially. Some savings accounts offer opportunities for tax-free returns that you can benefit from for a long time.
Putting a Price on Paying off Your Mortgage
As with many things related to the home, and loans, deciding whether it’s a good idea to pay off your mortgage often comes down to a matter of personal choice. You need to ask yourself rather you’d rather be debt-free as quickly as possible, or you’d rather improve the amount of cash you get in your pocket at the end of the day.
Think carefully about the different things you can achieve besides paying off your mortgage. For instance, in the investment solution we mentioned above, renting out the property that you buy could pay your mortgage, while you continue to benefit from the cashback you’ve earned through completing your home loan with us.