Reasons To Not Pay Off Your Mortgage

Posted April 17, 2011 – 7:44 am in: Mortgages
     

Why you should not pay off your mortgage

The main reason people pay off their mortgage is to have peace of mind and the reassurance that no matter what the world throws at them, their home is safe and secure. You will also save thousands of pounds in interest rates plus the spare money can be put to many other good uses. Granted, there are certainly many advantages to paying that mortgage off, but there are also advantages to not paying the mortgage off.

Interest rates are currently at a record low and so it is worth considering investing any extra cash you may have. There are great opportunities at this time to benefit from better returns. These are difficult economic times - you need only open your daily paper to be reminded of the predicament the country now finds itself in. We are living in uncertain times and because of this, it makes sense to be able to access your investments easily. Many people are facing job losses or cuts to their wages and it is a damn sight easier to release money from an investment than it is from a property.

Property differs as an investment with its value rising and falling regardless of whether or not you have a mortgage.

Many homeowners try to build equity in their house by paying off the mortgage. This produces low returns when compared to the equity you’ll build, purely by living and paying monthly for your home. Mortgages give you greater liquidity and greater flexibility, so it would make sense to have one.

Mortgages are the cheapest way to borrow money. loans offer low interest rates because you offer up the house as collateral. If you do not repay the loan, the lender sells your house to recoup this loss, so your lender has the ultimate form of assurance.

Another advantage to a mortgage is that the interest you pay is tax-deductible - unlike a credit card on which you could be paying non tax-deductible 19% interest or more. It makes more sense to keep the mortgage with tax-deductible interest.

When you first start paying off a mortgage, the payments can feel like a financial burden. However, it’s worth remembering that over time, these payments are likely to become cheaper when compared to income. In general, you can expect your income to rise while your mortgage payment may not - particularly if you are on a fixed-rate.

The value of your home could well rise considerably over time, leaving you concerned about loosing that equity should there be a drop in property prices. This is a predicament that many people are finding themselves in. Selling the house would release the equity but if that is not an option, there is another
solution - apply for a mortgage. This will release some of the equity held in the house without you actually having to sell it.

Here’s a hypothetical situation: You own a property in St Albans but are now after something bigger. You make 400,000 from the sale of that house and then decide to buy a new home in the same area for 600,000. The question is, how much of that profit should you put into the new house - a 10% deposit of 60,000 or the full 400,000? If you go for a small down payment, that leaves you with a greater amount of cash with which could can invest elsewhere.

Do you merely want to ditch your debt, or do you want to build up the family bank reserves?
If your goal is to keep generating a steady cash flow through your various investments, you need to look at the best way to lower your monthly expenditure. That’s why long-term loans are better than short-term loans: the longer the term, the lower your monthly payment. And the lower the payment, the more money you have left over that you can place into investments.

If you need some expert advice, then speak to trusted conveyancing solicitors today.

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