Paying off your mortgage vs keeping it: Which is right for you?

Deciding whether to pay off your mortgage or maintain it may be a tricky decision. Both options have their merits, and the right choice depends on your individual circumstances and financial goals.

Paying Off Your Mortgage

One of the most compelling reasons to pay off your mortgage is the peace of mind it provides. Eliminating monthly mortgage payments and interest rate risk can significantly reduce financial stress and provide a sense of security, especially as you approach retirement. Without worrying about a mortgage, you can allocate your income towards other financial goals, such as saving for retirement, investing, or simply enjoying hobbies. Additionally, owning your home outright can protect you against market volatility. During economic downturns, having a paid-off home ensures you have a stable residence, regardless of what happens to your income or investment portfolio.

Maintaining Your Mortgage for Flexibility

On the other hand, maintaining your mortgage offers significant financial flexibility. Loan products that allow flexibility can include a line of credit, redraw facilities, or offset accounts. Using a mortgage secured against your home as a source of funds usually provides a lower interest rate compared to personal loans or credit cards. This can be particularly beneficial if you have large expenses or investment opportunities that require immediate funding. Having the ability to draw on additional funds can also serve as a financial safety net. It may allow you to cover unexpected or urgent expenses when they arise, without having to liquidate assets. This can help preserve your investment portfolio and avoid potential tax implications. Prior to paying off a mortgage, it is also important to determine your future borrowing capacity. In some circumstances maintaining a mortgage may be beneficial if putting in place a new mortgage may be difficult in the future due to changing circumstances such as retirement.

Key Considerations

When deciding between paying off your mortgage or keeping it for access to funds, it is important to consider your individual circumstances and goals. If you’re confident in your ability to manage credit and have a solid plan for using debt, keeping a mortgage might be beneficial. On the other hand, if you value the security of being debt-free or have no immediate need to borrow money, it may be ideal to pay off your mortgage, and more cost-effective to reapply for a new loan if the need arises.

Importantly, you may need to consult multiple professionals. Your financial advisor can help you make an informed decision tailored to your individual situation and financial goals, but for specific loan product recommendations, you will need to consult a mortgage broker.