Invest or Prepay The Home Loan? Which is the wiser alternative for people?

By Trader Pit

July 8, 2021


Getting a home loan in Australia is a task that most first home buyers have to undertake. There are a couple of different ways to go about getting a home loan, and there are pros and cons to both. One of the main ways of getting a home loan is by investing the money into a property (pre-purchase mortgage), alternatively, many people prefer to pre-pay the loan and get the money upfront, or they can choose a hybrid of the two methods.

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.

If you’re facing the dilemma of whether to invest your home loan with the funds you have or pay it off early, you’re not alone. This is a dilemma most people face.

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.

Always borrow – banks and government want it that way

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.

Supplement

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.

Doing both is a simple understanding of what you can do with free money. But it is necessary to keep in mind the concept of a bank loan:

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.

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About the author

Trader Pit

A yogi who like Finance and Technology. I have been in Indian Stock market for over 12 years now as financial analyst, portfolio manager, trader. Now, I focus on Yoga, Financial Education & Long term investing. 

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