5 reasons to pay off your home mortgage early
Many blogs and websites have wrote about their views about why you should not pay off your home mortgage early. They advocate that you should keep your low interest home mortgage for as long as possible while investing the rest of your money in investment instruments that offer a much higher potential return.
In this article, I would like to share a contrarian view of why it may be a better idea to pay off your home mortgage instead.
Every week, I’ll be sharing practical tips and invaluable knowledge to guide you on your path to financial independence.
Avoid any risk of losing your home
The idea of a home mortgage relies on the fact that you have job security. Unless you have a cushy job in the public sector, there’s always a chance of losing your job when your firm goes through a rough patch in the economy.
If you lose your job and are unable to service your mortgage, the bank would not hesitate to foreclose your home.
The mortgage loan interest rate is real
You put your money into your investments with the mindset that the returns will be higher than the interest that you are incurring on your mortgage. But always remember that while your paper gains are not realised, the mortgage interest has already been realised and charged to your account.
Not everyone with a mortgage loan is a good investor
When many bloggers and professionals advocate that you should not pay off your mortgage early, they assume that you are a good investor with the capability to generate returns through investments. But the problem here is that not everyone with a mortgage loan is a good investor.
Can you confidently say that you are a good investor? Are you able to keep your cool and not sell all your shares when the market is down? Do you know when you should take profit when your investments are performing?
Being debt-free reduces your monthly expenses
If you are planning for an early retirement or a possible sabbatical, being debt-free will reduce your monthly expenses significantly. With a lower monthly expense needed for your retirement, it makes your retirement planning much easier to achieve.
Even if you are not planning to retire, having additional cash in your bank due to your debt-free status means that you can put more money into your investments and grow your portfolio.
Don’t mess with your CPF accounts for retirement
The Central Provident Fund (CPF) started as a comprehensive social security system that enables working Singaporeans to set aside funds for retirement. Subsequently, the system also started to address healthcare, home ownership, family protection and asset enhancement.
The problem with Singaporeans these days is that the modus operandi of purchasing a property in Singapore is to tap on almost all the money in their CPF Ordinary Account and subsequently service their mortgage with their monthly CPF contribution as well. This is the same for me as well.
With lesser money in their CPF account, it would be harder to make use of the power of compounding interest to build their retirement nest.
Would you prefer to service your mortgage as long as possible or would you rather pay it off as soon as possible? I’d love to hear your take on this. Please share your thoughts in the comments below.
