If you come by some extra cash or you are frugal in your budgeting, you can pay off your mortgage faster than the lender requires and as a result you can save money in interest charges.
Focusing on paying down your mortgage debt can be beneficial, however, you need to keep a few things in mind before paying off your mortgage:
1. First of all, if you have higher interest debt such as vehicle loans and credit cards, it makes far more sense to work towards paying down that debt first. Generally mortgage interest rates are lower than other forms of debt, so once you have paid off more expensive debt, you can work towards paying down your mortgage.
2. Secondly, you want to make sure that you have enough money kept liquid and accessible in the form of an emergency fund and once you have enough saved, then you can start focusing on paying off your mortgage.
3. Third, if you are an entrepreneur at heart, you won’t want to be putting all of your excess money into your mortgage because you will probably have other plans for your money such as for funding your latest business project.
4. Fourth, you may want to start building up your retirement savings at an early age before focusing on paying off your mortgage because by doing so you have time on your side and your investments will grow much more with the earnings being compounded over a longer period of time. You have to take note, however, that you will need to consider your investments wisely. If your projected rate of return is going to be lower than your current mortgage interest rate than it is still more beneficial for your to focus on paying off your mortgage first.
5. Finally, if you work for an employer who is willing to match your RRSP contributions, then it would make more sense to first take advantage of the free money given you by your employer before using all of your excess funds towards your mortgage. Everybody likes free money!
There are many opinions out there regarding whether or not it’s a good idea to pay off your mortgage quickly. My husband and I personally worked towards paying off a significant chunk of our mortgage during the first two years of home ownership. We have slowed it down slightly now, but we have seen a lot of savings in the amount of interest we have had to pay as a result of those lump sums.
Paying down the mortgage certainly makes more sense than keeping thousands of dollars sitting in a savings account earning a minimal amount of interest. As long as you have set aside enough for a rainy day, and you have taken into consideration the points above, I would highly recommend putting the rest of your idle money to good use by paying off a chunk of your mortgage.
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