Should I Pay Off My Mortgage?
We often hear advice that we should work hard to pay off our mortgages as quickly as possible. This will, we are assured, save us a fortune in interest payments in the long term. But is this always the best advice?
The answer is, well…it depends.
Is your mortgage on your family home? Is it non-tax-deductible? If so, then it’s a drain on your finances and we recommend that you pay it off as soon as you can. The sooner you pay it off, the less interest you will pay over the life of the mortgage, and the better placed you’ll be if you retire.
How can you do this? Here are a few ways:
Pay as much as you can afford. Because of compounding interest, the more you pay now, the more you save later. You could look at getting an offset mortgage or a revolving credit mortgage. The more money you deposit into and keep in the nominated account, the more you save on interest. This can make a big difference in the long term.
Look at increasing the frequency of your payments. Changing from monthly payments to fortnightly payments means two extra payments a year, almost painlessly.
Making lump sum payments whenever you have a windfall. Won the lottery? Skip the shopping spree and pay down the mortgage. Be careful, though – check whether your bank
charges fees for extra payments.
Not all debt is bad. If your debt is tax deductible – for example, a mortgage on a property investment – it may be serving you well. This is where you need to crunch the numbers to see what’s best for you. You may be better off using your funds as a deposit on new investments or for savings, rather than paying down your mortgage.
So, what should I do?
No matter what kind of mortgages you have, you should talk to us. We can give you advice about whether to pay them down, by how much and how to do it. We can look at your needs and make a plan that’s going to work best for you – both now and in the long term.