When you read about financial literacy articles or content on the internet, the question of home loans always comes up. Whenever you change jobs for a higher salary or get a bonus, or for any other reason, get extra funds – should he prepay home loan or invest that amount?
The process of buying a home is a long, costly journey that can include everything from researching the market to finding a home and getting a mortgage. For today’s post we wanted to shed some light on the cost of one of the most important parts of the home buying process: the mortgage.
As people move up the income ladder, they begin to generate more free money. When the goal is to improve financial health, using available cash wisely is always a priority. How to handle money wisely?
This can be done in two ways. You can invest the available money or use it to pay off your home loan early (early loan repayment). But what is the best alternative: investing or reducing debt? The choice will vary from person to person.
Most choose to invest rather than repay the loan. Why? For two reasons. First, the general view is in favour of investment. This is one of the best ways to manage money. Second, early loan repayment is not very popular. Why? Because the banks and the government want people to keep getting into debt and if possible get into even more debt.
Are you surprised? Yes, that is the reality. Banks will be reluctant to allow you to pay off your loan early. They will immediately recommend an alternative – investment. Why? Because the banks don’t want us to get out of our loans.
It’s important to keep your loan prepayment plan on autopilot. Therefore, it is ideal to always use at least 10% of your income to repay the loan. In addition, you can invest another 10% in building an investment portfolio.
So if you ask me if I should invest or pay off my mortgage, I choose the latter. See my personal finance plan.
But getting out of credit isn’t that important to everyone. What is the right thing to do for these people? You can do both – invest and pay off the loan early.
Frequently Asked Questions
Is it better to prepay mortgage or invest?
It is better to prepay mortgage and invest the money.
Is it better to pay off mortgage or invest Dave Ramsey?
Dave Ramsey is a personal finance author and radio show host. He advocates for paying off your mortgage early with the goal of becoming debt free.
Is prepaying mortgage good?
It is not a good idea to prepay your mortgage. The interest on your mortgage will be lower than the interest on the mortgage you are paying off.