by Adam Lee Buller

Created on: June 06, 2010

For most people the biggest and longest financial commitment you will ever engage in will be your mortgage! Almost everyone lives for the day that they will eventually be mortgage free. Should we all be striving so hard to pay off our mortgage in time for our retirement though? Is this the best thing for every individual? The answer to this often lies in that one word, Individual!

Are you a risk taker? 

For most the thought of still having the weight of a mortgage hanging round their neck during retirement is too much to comprehend but sometimes the money used to pay off a mortgage can be put to better use. There can be many things to take into consideration. Will you be better off keeping your money in savings and investments?  Will inflation significantly erode your debt? Will your mortgage company charge you an early repayment penalty? Finally, will you ever need fast access to cheap money? There are of course many other points to consider but for the purpose of this article we will concentrate on these four.

Investment vs. Mortgage Repayment

A mortgage is often the cheapest form of debt you will own in your lifetime. At the time of writing some people are actually paying no interest at all on their mortgage and have been for well over a year. When you consider what some high or low risk investments are yielding it is easy to see why the argument exists as to whether you should pay your mortgage off or not. Put simply will the interest you could earn off investments be higher than the interest you will pay on your mortgage? Remember however the risks! For example you could have been invested in Icelandic bonds last year or Greek bonds this year and therein lays the risk. If you like to take chances you may decide to invest and hope for the best. If you prefer peace of mind however you may want to pay off that mortgage and avoid the roller coaster ride of investments!

Will inflation significantly erode your debt?

Inflation has been relatively stable in recent years but we don’t have to look far into the past to see how inflation can affect an individual’s finances. Many countries since the end of the Second World War (No significance is attached to this date, it is stated just for arguments sake) have experienced periods of very high inflation which inevitably erodes debt. To illustrate let’s say you took out a mortgage in the 1960’s for $2000 and never attempted to pay that mortgage off until today. $2000

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