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Should You Pay Off Your Home or Invest in Property?


People can have a hard time deciding whether they should pay off their mortgage early or invest in property instead, so this article is going to make that decision easier by highlighting the benefits and downsides of each.

Benefits of Paying Off Mortgage

1.   Peace of Mind –

Paying off your mortgage will lift the burden of debt and give you peace of mind.

2.   Decreased Cost of Living –

Once you no longer have to pay instalments of your debt, your house will be entirely yours and your cost of living will decrease.

3.   No Interest Payments –

When you have a mortgage to pay, you not only have to worry about the principal amount but also the interest. Once you are debt-free, the worry of interest payment also disappears.

4.   Financial Security –

Upon paying off your mortgage, you regain your financial security.

5.   Equity is Built Faster –

Your home’s equity will increase more quickly if you pay off your mortgage faster. Consequently, you won’t have to be concerned about your property’s value falling below what you owe.

Downsides of Paying Off Mortgage

1.   Depletion of Life Savings –

Depletion in your life savings is inevitable. Paying off your mortgage means losing a hefty sum of money from your savings.

2.   No Tax Breaks Due to Mortgage –

If you pay off your mortgage early, you lose the ability to write off tax deductions on mortgage interest payments.

3.   There Might Be Prepayment Penalty –

Depending on your lender, there might prepayment penalty that you’d have to pay upon paying your mortgage off early.

4.   Loss of Investment Opportunity –

As mentioned above, paying off a mortgage requires making a big dent in your savings and when you don’t have enough savings, you can’t invest them.

Benefits of Investing in Property

1.   Another Source of Cash Flow –

If you invest in property, you can get another source of cash flow, apart from your own income. For instance, you can lease out your property and receive rent on it.

2.   Saving Remain Safe –

When you make an investment using your savings, you can rest assured that your money is not gone. Upon receiving returns from the investment, you can slowly build up your savings once again.

3.   Increase in Future Wealth –

Investment is a sure way of bringing an increase in your future wealth with the returns that you receive.

4.   Strengthen Financial Standing –

Receiving timely returns on your investment is bound to improve your financial standing as you won’t have to worry about all your money going into the payment of your mortgage’s installment.

5.   Tax Breaks –

You can get tax breaks for making investments as there may be tax benefits for owning more than one property.

Downsides of Investing in Property

1.   High Risk –

There is a chance that you might make a bad investment and receive a loss. That kind of risk is always present in these matters.

2.   Increased Debt –

A bad investment can cost you money instead of providing you with it. If you choose to invest in place of paying off your mortgage, your debt will remain a burden on you.

3.   House Belongs to the Bank –

Choosing investment instead of paying off your mortgage means that your house will still belong to the bank.

4.   Anxiety about the Mortgage –

Knowing that you haven’t paid your mortgage will remain a source of anxiety.

The Bottom Line

These were a few advantages and disadvantages of paying off your mortgage versus investing. If you need help you can get investment tips from apartment investing with Ironfish Australia

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