With all the gloomy news about pension plans in the press you may be worrying whether you should actually be investing in a pension plan or not. A new wave of thinking suggests possibly not. There may be good news ahead, particularly if you already have a mortgage. Current advice is leaning towards encouraging people to pay any extra money they may have back into their mortgage, rather than opting for other investments that may come attached with a bit of a gamble. The economy is nowhere near as stable as it used to be and it is often the case that financial gambles just don't pay off anymore. For this reason more and more people are concentrating on paying off their mortgage so that in their later years they are free of the noose around their neck when times may well be more fruitful.
A mortgage is one of the safest investments you can make, and if you manage to pay your mortgage off early you may well still have a few years of working left in you to start amassing some serious savings. Investing your money in your own bricks and mortar is a great way to set yourself up for a mortgage-free retirement. This option is not for everyone, but in this article we weigh up the advantages against the disadvantages to help you make an informed decision on the future of your personal finances.
The Advantages Of Paying Spare Money Against Your Mortgage
- Firstly, you will be giving yourself a lot of peace of mind. Paying off a debt is something nobody enjoys doing, but there is a small sense of satisfaction in keeping the wolves from the door.
- It will focus your mind. If you take on a mortgage and concentrate on paying it off, you will not distract yourself with other investments and gambles.
- It's a secure investment with a guaranteed return. There is no doubt that once you have finished paying off your mortgage, your house is 100% yours to do what you like with. Whether you choose to sell it, rent it out or remain in it you have complete control over your finances. And, once your mortgage is paid off, the amount of outgoings from your bank account will be so minimal that you will have a great opportunity to save.
And The Disadvantages?
- A disadvantage is that usually your mortgage rate of interest will be quite low, and interest payments can be tax deductible, so you could be making more profit elsewhere. For example, making a 10% return on an investment is a better result than paying off a mortgage loan at 5%.
- The bank doesn't give you any extra perks for paying off your mortgage early. So if it's financial security in an emergency that you are looking for, you are probably better off spreading your investments.
- All your money is effectively in one place. Some people like this and some don't, so decide which camp you fall into.
By paying off your mortgage early you are freeing yourself up in later years, but do your maths first you may be worse off. Have a look at the type of mortgage you have would you be better off on another deal? It is sometimes possible to negotiate new terms with your mortgage lender so make yourself aware of all the options.
If you are still confused, employ the services of a financial advisor who will be able to review your financial position and help you decide on a clear path ahead.