A very common question which comes to everyone’s mind. Recently I was talking to a friend of mine who was retiring and I asked him one of achievement in his life and he mentioned he paid off his house mortgage which was about 500 thousand through his salary from job. I appreciated him and congratulated and also asked him the current worth of the house and he mentioned 2 million. He is now downsizing as his kids are married and he cannot maintain the big house. He and his wife will stay in a smaller town and in a smaller house and have rest of the money in bank !! Sounds very promising to many of you for sure.  

Another friend of mine used the extra money to take his kids when they were young to to Disneyland, went to world trip with his family, bought another property and added mortgage, bought some nice stuff for home like gadgets to make smart home. Basically he rotated money to invest rather than pay-off during his prime years.

Enough about the scenarios as everyone has different way of thinking and managing personal finance. Nobody is wrong, it is all about how you want to manage your personal situation and what you think is right for you.mortgage

What is the mortgage (Home Loan) rate for you ? If the mortgage is 3 to 5% and you think you can safely get a 10% return from other investments, obviously it makes sense to get a 10% return than pay off 5% money. If the mortgage is high say 7 to 10%, you would prefer to pay mortgage. It is a very simple math ! Many people come from a thinking that it is wise not to have debt. This is what we have to analyze. Can we earn more by having debt and then pay off debt ? Do we have sufficient resources and ideas to earn a better return ? People use money in their business, in stocks, ETFs, to buy another property which may give better returns, to further lend the money at higher rates and for many other legitimate sources of income. So if you think you can get better return then using all extra money for paying of mortgage may not be a better choice. 

Another important factor is your age, your liabilities like education of kids and existing debts, etc. You cannot just keep on adding debts and need to think of cash flow. Also need to plan of emergencies as it is well known fact that you need to have at least 5 to 6 months of expenses in terms of cash with you or liquid in bank. So consider your personal financial situation. If a friend says go buy more properties or spend in new ventures because he made money it does not mean you follow him. His situation may be different than you. Use your judgement, know your financial situation, your circumstances, your assets and liabilities, your retirement plans, your medical situation and needs, your family situation and environment. It is a whole ecosystem which matters not just following a friend’s advise or reading an article on Google which changes your life. All the best ! 

Author: Gagandeep Singh

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