I firmly believe that one of the best financial investments you can make is to pay off your mortgage – and this article in the Globe and Mail sums up the argument perfectly. According to the article, there is no better after-tax return than paying off your mortgage.
The thing is, you will likely never take out a bigger loan than a mortgage – and the thought of spending the next 25 years paying it off can be daunting. Even if you implement accelerated payments, or take advantage of throwing a bit of extra cash towards your mortgage from time to time, it doesn’t seem to make a significant dent. It can be much more gratifying to turn to the stock market, GICs or other investment vehicles instead – but there’s also a lot more risk involved. For those of you still unconvinced, consider this:
There are a lot of things to save for in life – including retirement, vacations and emergencies. Add investing to the mix and you’re not left with a lot of extra cash at the end of the day. Simplifying your investment goals by paying off your mortgage first can open a lot of doors for you down the road. After all, once your mortgage is paid off, you can use the equity to tackle those other investment goals later or qualify for a home equity line of credit to use as your “emergency savings”?.
Paying off your mortgage faster can be seen as a forced savings plan. Most mortgages allow you to pre-pay up to 20% annually. If you set your mortgage payment to that higher amount – or as high as you can afford – the funds will leave your account automatically, and you’ll save thousands in interest payments, not to mention shave years off the life of your mortgage.
Even if the housing market completely stalls and your home never increases in value (which is pretty unlikely), you’ll still have something to show for your investment in the end. In these uncertain times, you can’t really say the same for the stock market.
We’ll likely never see interest rates as low as these in our lifetime. Whether you have a variable rate mortgage or a fixed rate, why not take advantage of this moment in history and pay off as much principle as possible? When low interest rates are said and gone, won’t you be happy that you did?
Obviously it’s great to diversify – and no one is saying you shouldn’t invest elsewhere. But if cash flow is an issue, and you can’t afford to gamble your money away, paying off your mortgage as fast as possible might be an option for you.