Is It Better to Pay off a Mortgage or Invest?

When a mortgage broker is asked if it is better to pay off a mortgage or invest by a client, they should take certain factors into consideration before answering. 

If a client is in the early stages of paying off their mortgage, it may be better for them to pay off their mortgage in full rather than invest so they can save money on interest repayments. If a client is near the end of their mortgage and approaching retirement, it may be better to invest their funds rather than pay their mortgage off in full so they are financially prepared for retirement. Additionally, if a client has high amounts of debt, their mortgage broker may advise them to allocate their funds to reducing that debt rather than paying off their mortgage in full. 

While owning a home outright is an important goal for countless Australians, paying off a home early can lead to some significant disadvantages, including the following examples:

• Clients will lose mortgage interest deductions resulting in an increased amount of taxable income
• Clients may run emergency savings dry, which can result in severe financial hardships if employment is lost or emergencies arise
• Clients may be required to pay a prepayment penalty, which is a fee charged by mortgage brokers for paying off a mortgage too soon
• Clients can damage their credit score by paying off their home early due to the credit loss

Individuals who are interested in paying off their mortgage in full should reach out to their mortgage broker to inquire about any rules or requirements in place and receive helpful assistance.