Mortgage Tips
One of the most common ways of financing the purchase of a home or landed property is through a mortgage. With a wide variety of mortgage and financing options available, buying your dream home is easier than ever. But you should remember that loans have to be repaid and if you fail to pay your mortgage, you will risk foreclosure and loss of a large investment. The question that will come to your mind is whether to pay down your mortgage early or continue paying it over the entire term of the loan. The answer to this question will depend on a number of considerations and individual preference.
Case 1: Low Income, Uncertain Future
When faced with a situation of low income and large debts, people are often engage in the dilemma of whether they should save some money for a rainy day or allocate it to repayment of their mortgage. This is a very common problem faced by borrowers and has no straightforward or clear cut solution.
If you are facing such a dilemma, the first question that needs to be answered is whether you are comfortable carrying on the burden of mortgage debt or not. Depending on your financial situation, more often than not, you would prefer to keep diverting the extra cash to the mortgage repayments.
Case 2: Moderate to High Income, Uncertain Future
For those with a reasonable income, the problem is trickier as it has more than one dimension to it. Consider if you have an adequate savings base that can sustain the present situation and also allow you to maintain your financial stability in the future. If not, then the extra money should go for repayment of present mortgages.
Case 3: Moderate to High Income, Planned Future
For people who are capable of carrying on their mortgage debts and have a solid retirement plan in place, the problem is more intricate. Here the consideration would be if you should let your finances be exposed to the risk of increase in interest rate in future and other sudden changes in the financial market. To protect yourself from such risk, it is always better to use the extra cash flow to repay a mortgage when the interest rates are low. But if the risk of such a situation is perceptibly low and the costs of borrowing is also low, making investments that are likely to yield higher returns than the costs of mortgage would make better financial sense.
This above list of situations or cases is by no means exhaustive and there are a number of other things that might deserve a thought before you decide whether to pay down your mortgage. Some of these additional factors could be whether you can negotiate a lower payment or a relaxed amortization. In case you don’t have a good knowledge of the complex financial factors involved in this decision, it would be a good idea to consult an expert mortgage broker for advice.
