• Seth Wu

Should You Pay Off Your Mortgage?

Updated: Apr 28, 2020

You strike lottery (Congratulations if u did)! Or you finally save up substantial amount of money. Many will tell you go pay off your debt and be debt-free.

It is awesome to be debt-free, but hang on before you decide to. There are many considerations for you to think through.

Watch the vlog below. If you prefer to read, please scroll down.



Yesterday you strike Toto and gotten 2 million dollar!

Or you have just closed some big deals for the company and received a big bonus!

Or after working so hard and save up for so many years and you finally have more than half a million dollar in your bank!

I am sure many of us will be hoping to receive or have such big amount of cash. The next thing you probably will be thinking: I should go pay off my mortgage and loan and live a debt free life!

No doubt being debt free is great! But hang on a moment. Allow me share with you 3 considerations to think about first.

Not all debt is bad

To me, I classify debt into 2 types. Simple. Just good and bad ones.

Bad debt are money you borrow to purchase something that cannot earn you money. This is depreciating on your asset position.

For example, buying a car for personal convenience and pleasure.

Good debts are money you borrow to purchase something, that after minus off cost of borrow, it can appreciate in value and maybe earn passive income along the way.

So the question to ask is, can the debt help me to earn money?



Opportunity Cost

Now you have $500,000 funds on hand. If you pay off a loan like a mortgage, you are investing your full $500,000 into the property. What if this $500,000 can be invested elsewhere, or in another property, that can earn more than your cost of borrow? If this is the case and you fully pay off your mortgage, the question is are you paying a bigger cost, the Opportunity-cost.


Volatility

A important consideration if you want to invest your funds else where rather than paying off the mortgage.

Volatility of the investment to me means how frequent is the ups and downs of the value of investment. Other than this, you should also take note of how regulated the investment is and how safe it is, which means the institution or person who sell you the investment won’t disappear suddenly.

Generally, property is not as volatile as other non-tangible investment like stocks, shares, futures, unit trust, etc.

What if you invest your funds into another lower volatile investment like another property or bonds which has higher chance of appreciating in value as compare to your current asset, will you be better off rather than paying off your mortgage?

In my opinion, above are just 3 out of many other considerations one must think through before making the decision to pay off the loan. I am sure there are many other schools of thoughts with regard to this matter. There should be no right or wrong, but you probably have to think and plan through base on your comfort level and risk appetite.

If you like to have a more detailed discussion, proper calculation and planning, or if you like to be updated of my new vlogs, please leave your contact details (at "sign up and stay updated") below and I will be in touched with you. See you soon.


**all data and information extracted from URA and OrangeTee & Tie Research & Consultancy. The content and information provided is for general information only. It should not be treated as an invitation or recommendation to buy or sell any specific property or product. Each illustration in the presentation or article is based on current information as at the date of publication. Readers are to consider the content as one of the many factors in making investment decision and should seek specific investment advice. Readers should carry out their own due deligience or verification of such information. The author and publisher of the article are not liable for any losses. All right reserved.

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