Just got the salary hike? And confused about whether to invest for the future or to pay down the mortgage to save up the interest rates. There is soo much to talk about invest pay mortgage. Although it makes sense for many homeowners to prioritize paying off their mortgage debt, does it make more sense to put extra money toward retirement savings first?
Here is a comprehensive analysis of invest or pay down mortgage.

When You Are Considering Paying Off The Mortgage

Advantages of paying off the mortgage:

  • Debt-free:

It might be free to own your own house and not have to make any more payments every month. Depending on the number of your monthly payments, you may now have saved AED 1,000 or more per month available for other uses.

  • Can avoid paying interest:

If you pay off your mortgage before the term is up, you may be able to avoid paying thousands of dollars in interest that you would have otherwise had to.

  • Can free up funds going forward:

If you are no longer making mortgage payments, you can now utilize the money you would have been spending every month on those payments for other purposes, such as saving for the future or doing things you enjoy.

Disadvantages of Paying off the Mortgage:

  • No Tax Deductions:

You can no longer deduct mortgage interest payments from your taxes, if you are paying off your mortgage early. These write-offs are actually extremely helpful and, if you’re still making mortgage payments, they can boost your refund while lowering your taxable income.

  • Fewer Savings:

While using your savings to pay off a sizable portion (or the entirety) of your debt may seem like a good plan, investing all of your money in a venture that is difficult to access in an emergency can be perilous. No matter how tempting it can be, it’s necessary to set away some money in case of a financial emergency.

  • Reduced Investments:

You may be overlooking other significant investments, such as your retirement fund if you are investing all of your resources in paying off your mortgage. Additionally, you might be earning much more money from investing in slightly riskier venues, like the stock market.

  • Prepayment Penalties:

Depending on your lender, there may be consequences for paying off a mortgage too rapidly. A penalty based on the remaining principal balance may be assessed by your lender if you pay off a mortgage during the first few years of the loan.

Considering to Invest Your Money:

In a larger picture of mortgage or investment, let us look at some of the benefits and drawbacks of investing in addition to paying off your mortgage.

Advantages of Investing Money:

  • Will have a higher rate of returns:

You have a greater chance of earning money by investing in something like the stock market because it is intrinsically riskier than paying off your mortgage early.

  • Improved liquidity of assets:

A mortgage is inferior to equities, bonds, and other similar investments in terms of liquidity. It will be far simpler to use the money from selling stocks or other comparable investments than it will be to sell your home or try to complete a cash-out refinance if you find yourself in need of cash.

  • Increases your future wealth:

You may (ideally) increase your future wealth by investing in your retirement and future, whether that be through stocks, bonds, or even a small business. You’re putting yourself in a better financial position for the rest of your life by accumulating wealth now that will only increase over time.

  • An employer match could happen:

Some companies might be ready to match your contributions if you’re investing in a retirement account. Depending on the percentage of your salary that is involved, your company may match half of your contributions or even the full amount that you put into investments. If your employer is on board, this might be an excellent opportunity to increase your wealth over the long term because the more you invest, the more you stand to benefit.

Disadvantages of Investing Money:

  • Risk of investing:

Investing is riskier than getting a mortgage. When you invest in the stock market, you could make thousands of dollars before losing them. Although your returns could be higher, they won’t be as secure and stable as the returns you will ideally see on your house over time.

  • You’re still paying your bills:

You still have to spend money to invest, and you’re not even sure you’ll get a good return. It can be disappointing to put all of your money into something only to see its worth fall when you choose between invest or pay down mortgage.

  • Your debt does not go away when you invest:

You won’t make much headway on whatever debts you might have, whether those be student loans or your mortgage if you’re investing all of your money in retirement accounts or other types of assets. Even if it’s possible that you’ll eventually accumulate enough savings through investing to take care of such things.

In terms of mortgage or investment, both saving up money and paying off a mortgage early can be very advantageous. However, because every person’s financial position is unique, you should think carefully before choosing a course of action and determine which alternative would be best for you. To assist you in creating a strategy, it is always a good idea to speak with a financial advisor.

Pro financial solutions is a trusted financial planning organization based in Dubai, for both your needs and wants. We assist people, right from wealth management, SIP, and retirement planning to legacy planning, child education and everything in between. With our team of experts and over 12 years of experience, we offer holistic and tailor-made financial solutions for your long-term and short-term invest pay mortgage goals.

Asfar Ibrahim - Top Financial Advisor Consultant Dubai UAE, Qatar, Oman and Saudi Arabia

Asfar is an Independent Financial Advisor and Associate Partner with Continental Group based in Dubai, UAE with over 12 years of experience in the region. His clientele includes high networth individuals, corporations, C suite executives, business owners, and entrepreneurs in the region.

Although with proper planning and consistent effort, you can save, invest and distribute your own finances. It is always good to get some professional advice. If you need help in planning your finances in the short, medium, or long term, I can help you do so. You can write to me with your questions and comments to asfar@profinancial.solutions

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