Should I Pay Off My Mortgage or Invest?
Having a large chunk of spare cash is a very nice situation to be in, but it might get you wondering about the options available to you. What is the best way to spend it? Should you pay off the rest of your mortgage or use it to invest?
Both have their advantages. Paying off your mortgage would save you those monthly payments, whilst investing provides the opportunity to increase your profits and fund for a better retirement. But which would be more beneficial?
In this article we will look into what you should consider when deciding how to spend your large chunk of money.
Ask Yourself These Questions First
When it comes to deciding how to spend your money, you should consider a few factors before making a decision. From looking at your savings to your pension, give these a think…
How Are Your Savings Looking?
It’s always handy to have a rainy-day fund. So if you find yourself in the situation with spare money floating about, but you’re without an emergency savings pot, you may want to consider starting one.
This is to prepare yourself for a future financial emergency, such as being made redundant or needing an urgent boiler repair, which this fund will help you with. Having this will put less pressure on yourself.
Experts suggest aiming to save 3 – 6 months’ worth of your salary in a savings account specifically for emergencies. So if you don’t already have one, now is the perfect time to start.
Are You in Debt?
If you have credit card payments to make, you’re in your overdraft or any other kind of debt, you should prioritise paying these before considering anything else.
With debt, the interest you’ll be paying is likely to be higher than the interest on your mortgage. It’s therefore better to pay off your debt before you focus on paying off your mortgage.
Paying off your debt as quickly as possible should be your main priority.
Do You Have a Pension?
If you don’t already have a pension set up, you should do so immediately. Not only does your employer contribute to your pension scheme, but all money contributions have tax relief. This is a great way to save for your retirement.
Paying Off Your Mortgage Early
Having a mortgage can take up a large chunk of your monthly salary, so there’s no wonder why many people would like to try and pay it off early.
While using savings to pay off the mortgage early can ease quite a big burden, this is not a decision to be taken lightly. There are advantages and disadvantages to paying it off early.
The main advantage of paying your mortgage off is no longer having monthly outgoings, leaving you with a lot of extra money per month. And by paying it off quicker, you reduce the interest you’ll pay.
However, using a large chunk of money to pay off your mortgage means you won’t be able to use it in an emergency. That’s why it is extremely important to have emergency money in savings if you’re planning to pay off your mortgage early.
If you’re thinking about investing your money instead of paying your mortgage off, you could benefit more from this than to simply put your money into a savings account. It’s likely your money will grow quicker than the low interest from saving accounts.
However, to see the most benefits you need to invest your money for around five to 10 years, so keep this in mind.
Another benefit is that you can take out of your investment if you need money in an emergency.
However, there is always the chance that you won’t see any returns on your investments, and you can even experience a loss. To see real benefits, you must be willing to invest your money for a long period of time. If you are risk-averse, this is not for you.
Your individual financial circumstances will play a big role in deciding how to spend the rest of your cash. If you have the time, patience and knowledge of investing, there are potential benefits to be had. You can also take out from your investment if you find yourself in a financial emergency. But there is also a real chance of losing out or seeing no return.
However, being mortgage-free could be a dream goal for you. You will benefit from less debt and outgoings per month which could be the ideal circumstance for you. However, if you don’t have any savings then you may find yourself in a financial issue down the line. But if you already have savings, paying off your mortgage may be ideal.