It is complicated to decide between investing your money or paying off your mortgage. Paying off mortgages provides freedom from the lender. It gives a sense of relief, knowing that you are already free from debt. On the other hand, the idea of investing in another home or property is enticing. There is a possibility of a more significant cash return in the future, whether you rent or flip the house out.
It is crucial to make the right choice. There are pros and cons to investing and paying down your mortgage, as stated by Ideal Real Estate Investing. Remember that there is no right or wrong answer. You just have to determine which of the two works best for you.
Advantages of paying off mortgages right away
1. You will be anxiety-free from thinking about your loan debt
If you prioritize paying your mortgage off than investing in a new property, you will be free from all the weight you carry on your shoulder. You'll be debt-free, and you already own the property. Take note that missing mortgage payments due to emergencies, you might lose the property.
You don't have to worry about losing the property if you prioritize paying off your mortgages. It will also boost your credit profile because a considerable debt will be wired off from your credit score. You will have a lot of investment opportunities in the future.
2. Your debt to income ratio will be reduced
Paying your mortgage altogether will drop your debt to income ratio. If you plan on taking another loan, the lender will check your financial history, including your debt to income ratio. Having a ratio of 43% or lower will provide higher chances of getting another loan.
3. You'll be able to save extra money each month
If you completely paid your mortgage, you will be able to save extra money each month. You will have a flexible budget and extra money for other expenses. You can utilize the money you save to invest in other properties, cover additional costs, or even treat yourself. Having extra cash in your bank account will provide numerous options.
4. You gain equity
If you pay the mortgage of your property or home entirely, you gain equity. Note that the lender still owns a piece of your home if you are currently paying the mortgage. After paying the mortgage, you solely own that equity, and nobody else gets a part of it.
5. You will be free from interest payments
Paying off your mortgage faster will reduce the interest you pay to the lender. Take note that interests add up quickly. You will save more money by prioritizing your mortgage.
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Advantages of investing in real estate
1. More money can be borrowed when investing in real estate
If you pay off your mortgage first before investing in other real estate properties, you will have a more difficult life later. If you plan to get a new loan in the future, there is a high chance that you may not qualify. But if you're qualified, it may have an incredibly expensive interest rate.
2. You can take advantage of your mortgage interest deduction
The mortgage interest deduction is a tax deduction you receive annually if you still pay off your mortgage. You won't be able to take advantage of it if you pay off your mortgage early.
3. You will have asset protection
Asset protection only applies to those who are still paying off their mortgages. If you're done paying the mortgage, you lose the asset protection. So, if you borrow money from someone else and come after you, they can take your property as the payment. But, if you still pay for the mortgage, you don't need to worry about losing the property since you don't completely own it.
4. Investing in real estate is profitable
We all know that if you invest in the right real estate, you will make more money. For instance, renting out your property will give you rent money every month. The mortgage payment you pay stays the same, but the rent money you collect increases over the years.
The best way to decide which option is the best for you is by weighing its pros and cons. Evaluate and analyze your situation and do not jump into decisions without thinking things through.
