How to use overpayments to eradicate mortgage debt... Paying off your mortgage early is one of the most powerful steps you can take towards financial freedom, but when it comes to overpayments— here’s why it pays to be the Tortoise, not the Hare.
Photo: Unsplash | Source: Medium
“Debt is normal — be weird” — Dave Ramsey
There is a lot of talk about mortgages.
A lot of talk about how much you should borrow, what term is most appropriate and how not to overstretch yourself. Like most things in personal finance, mortgages are personal, you need to do what’s right for you, but if you need a basic plan here’s one that I’ve found a good guide:
The shorter the term the better. If you can’t afford the mortgage on a 15-year term, consider if you can really afford it at all.
Whatever percentage of monthly income you think is appropriate to borrow, it’s probably too much. Personally I think 25–30% of monthly income is appropriate — after all, income can come down, and rates can go up.
Fix your rate. The amount of times I’ve heard “well interest rates are low, now is a great time to borrow” and it makes me cringe. Yes, interest rates are low, but that’s exactly what makes them more likely to rise over the life of the mortgage.
Should you even pay off your mortgage early?
Yes. Whilst this may at first glance appear to be a strange question (after all mortgages are debt and debt should be paid off right?) there are a lot of people out there that will tell you that you shouldn’t.
They will tell you that while interest rates are low, you’re better off attacking more expensive debt with any excess income that you have, rather than paying down your mortgage.
They will tell you that mortgages are just a necessary evil of life, that everyone has one and that spending all your hard-earned money paying it off is an inefficient use of your money.
Whilst I’m not in the business of saying why others are wrong to say what they say, personally these arguments are not for me, and I also don’t think they are helpful for most people.
For most people, our mortgages represent our single biggest expenditure, and I’d much rather work towards getting rid of it so I can live in the bliss of being mortgage-free and am able to invest later, rather than scrimp together to invest a little now so I can say “I’m investing”. After all, who needs a mortgage hanging around any longer than they have to, even if the rate is low, for now at least.
The main difference in debt is good and bad debt.
Bad debt does not directly generate wealth good debt does. Sometimes it may be worth investing where the best results occur and living in a rental where you want to live.
Call or email us to find out how our Positive Income Properties will help you with this.