It’s a question I hear often from clients regardless of the current mortgage interest rate environment. There’s no easy & quick guidance on what to do. Making the right choice necessitates a careful consideration of your own individual circumstances.
It may help to apply this framework to lead us to the right path for you. For starters, let’s reassess your current financial position. Do you already have an emergency savings bank account funded with 3-6 months of your average household expenses? Do you also not have any high-interest credit card or student debt? If you answered “yes” to both then we can consider applying surplus cash flow towards a mortgage or investing towards your retirement or other future goals.
Making extra mortgage payments could make sense if you are risk-averse since paying off your mortgage might align more with your comfort level. Moreover, if you’re nearing retirement, reducing debt might be a priority. Conversely, investing surplus cash for future goals could be appropriate if the expected return on investments is higher than the interest rate on your mortgage. Furthermore, if retirement is far off, investing for the long-term could be more beneficial.
It's also important to carefully consider the tax implications of either option. Sometimes, mortgage interest can be tax-deductible, while investments might have capital gains tax implications.
The right choice is one that not only makes mathematical sense but also aligns with your peace of mind and financial security.
