Many people wonder whether they should pay off their mortgage/debts sooner or invest. A dollar saved is the same as a dollar earned. Reducing undeductable debt will mean that you avoid investment risks and repayments become more and more manageable (guaranteed return vs possible return via investments). Focusing on mortgage reduction in the early years can take years off the duration of your mortgage. Eventually, mortgage repayments take up only a small portion of your personal cash flow and returns from other asset classes will exceed those achieved via your capital gains tax free main residence. The interest saved on mortgage repayments is not taxed in the same manner as investments, so to work out whether you should invest or repay your mortgage faster, you should calculate the after tax return from an investment that’s required in order to exceed the benefits obtained via interest saved on extra tax free loan repayments. Remember to increase the required investment return to allow for the increase in risk.
Posted on: Thu, 19 Sep 2013 16:06:46 +0000
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