The past year has been quite struggling and affected finances in fairly unexpected ways. Some people find it hard to make ends meet, and others pay off instantly with savings.
Thus, if you are fortunate enough to earn extra cash or save enough, you must search for ways to spend or invest money.
Pay Mortgage Early or Invest?
You will probably relish the day you will be mortgage-free and when mortgage rates are high. Although debt can be a thorn in your finances when you are eyeing, optimizing every dollar, then having a situation is better.
It is because debt leaves with the opportunity to earn more money.
An average household holds nearly 20% of the savings of their disposable income in the first 3 months of the year.”
How should you spend the extra savings?
Should you spend it on taking out bad credit car finance Ireland or invest?
To clear this dilemma, ask yourself the below questions.
1) How vast is your money bank?
If you invest the money you save on a mortgage, you cannot access that money easily. For that, you will either have to sell the home or have to go through a costly process that involves re-mortgaging.
Thus, it is imperative to save for at least 3 months of living costs saved in cash for meeting emergency life events. But if you are well-off money-wise, you can invest some of your cash. Before investing your money, do your research. You should prepare a portfolio for at least 3 years for your investments to mature and give returns.
2) What is the mortgage tenure?
The mortgage is a huge financial commitment because of the tenure it takes to pay back. The term of a mortgage can range from 20 to 40 years, depending on the borrower’s financial standing. The longer the mortgage, the more is your interest. However, overpayments can reduce interest and help you pay off the mortgage faster.
This thing is especially common with repayment mortgages. On the other hand, individuals with interest-only mortgages share different terms and conditions. In addition, this should look for tailored or expert advice.
Alternatively, if you are left with less time on the mortgage and are comfortable with the payments, and have saved extra money, invest it.
3) What is the interest rate on the mortgage?
Average mortgage rates on mortgages are low. Having a diversified portfolio, in this case, can be potentially rewarding. But the downside of the same is that investing doesn’t come with guarantees, and you are charged an extra fee as well.
But if you have sufficient funds at hand, investing is a far better option. Yeah, despite having caveats. If you are paying the mortgage in over-payments, have an emergency account, and wish to make the best of the savings at hand.
4) How much risk are you willing to take?
While savings and investing both involve a risk factor, investing in profitable assets is an opportunity one shouldn’t miss.
Investing in high-priced assets can beat inflation, but investments are volatile and subject to risk.
As an example, if you are looking to stop your mortgage and pay off the house, you may not get the same deal as when you purchased it. However, by paying off the mortgage, you can indeed have something that you own legally, regardless of how much it is worth. So, over-payment is one of the best ways and less risky ways to keep your finances sorted.
5) What will be your age when you pay off the mortgage?
According to research, banks offering mortgages to first-time buyers reported the age of the individual lie between 25-30 years. It means that one can own the house fully when he turns 40-45. At this age, people can plan and save for their retirement.
Soaring house rates have delayed mortgages and homeownership for first-time buyers. Now, it takes nearly 60 years to own a house. Here, using extra money to pay off the mortgage in over-payments is an ideal thing. And making overpayments can ease the burden, especially when retirement planning becomes a major concern.
Planning your retirement early can help you benefit from leveraging compound returns on the investment.
6) Do you have other debts?
Before making any decisions, check if you have any pending debts, such as car loans, credit card debts, overdrafts, etc. Because the interest in these loans will be relatively higher than those on mortgages, it is essential to consider these factors. And it could be higher than the returns you will reap by investing. So, think wisely.
But repaying these will help ease up your credit score, and you will cover up for repayments easily.
7) Are you saving for a pension?
If you are still thinking about whether to save for your pension, then it is time to save already. Contributing to a pension will help you seek relief from tax.
If you have access to a workplace scheme, you gain the favour of the employer and your benefit, as this will represent an investment, a long-term one.
Advantages of Paying your mortgage early
Here are some advantages of paying off the mortgage early:
- You can save more than expected as interest payments
- Early mortgage payments guarantee good returns on investment
- Ease-up the burden
- Help you build equity in your home
- Help you qualify for refinancing, which means more money at hand
- You can use the sum in HELOC to increase the property’s value
Disadvantages of paying your mortgage Early
Apart from advantages, paying off the mortgage early has its disadvantages too. Here they are:
- Paying-off mortgage early will bereave you of any money to meet emergency needs
- Early repayment charges on a mortgage may prove an additional burden apart from other liabilities.
- You lose access to tax deductions on payments
- You cannot use that money for other investments
- It could affect your credit score
Benefits of Investing the sum
On the reverse side, if you plan to invest the additional sum or savings in hand, you can leverage the below benefits of the same:
- If you invest a sum in a potential stock or equity, it is likely to grow your financial base in the coming years
- You get compound returns on investment
- You will still have access to cash in case of any emergency
- You can invest more into your pension or retirement account
- Leverage the employed scheme for further benefits
- You can sell the shares or equities at a good price when you need to
Disadvantages of investing the sum
Yes, there are disadvantages too of investing, if you miss the beat:
- Paying off your mortgage early can boost your finances
- You will have more disposable income
- You might suffer short-term losses
- Fees are associated with investing
Should you invest in the mortgage or invest?
Well, you can go through the contents mentioned here in the article and decide what is right for you according to your financial situation and priorities.
Check whether it is your dream to be car finance Ireland, no deposit debt-free, or you are comfortable paying-off mortgage along with building sound cash by investing.
Apart from this, if you have a decent emergency fund and are debt-free, you can go for either option.