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Invest

Should you invest or pay down your mortgage?

June 21, 2024
5
min read

What’s the wisest way to use your savings? The answer depends on your financial priorities, risk tolerance, and the current interest rates.

Couple reviews financial statements smiling

These days, it’s harder and harder to put away savings each month. You want to ensure the money you’re saving is being used efficiently!

Naturally, that raises the question: Is it more prudent to pay down your mortgage, or to invest for your retirement?

  • By making additional mortgage payments, you can reduce the amount of interest you pay over time.
  • By investing your money, your retirement fund has more time in the market to grow, taking advantage of compound interest.

“Everyone’s financial situation is different; your choice depends on your individual risk tolerance, your financial goals, and the interest rate you’re paying on your mortgage,” says Pushti Kaushal, Financial Advisor at Cambrian and Aviso Wealth.

“Cambrian advisors look at your unique situation. Based on that, we can suggest the best course of action.”

We sat down with Pushti to talk through what you should consider before making your decision!

Why should you invest instead of paying down your mortgage?

As far as your financial well-being goes, there’s more to it than just paying off debt. It’s also important to think about future goals, like retirement savings.

“One of the advantages of investing is that it gives you peace of mind that you’re saving for the future. You know you’re working towards retirement - and when the time comes, you’ll be glad you did,” says Pushti.

The benefits of investing include:

Growing your wealth

Thanks to compound interest, the money you start investing today can multiply by the time you reach retirement.

Depending on how the market performs and how you invest, your investment returns may be greater than the interest rate you’re paying on your mortgage.

Diversify your investments

Rather than putting all your eggs in one basket (your house), you can diversify and allocate money towards your retirement fund, too.

Your money is more easily accessible

You can borrow money from your house, but you can’t easily take money out of it. The same is not true of investments.

If you’re facing financial strain, you have the option to sell your investments and convert them to cash. While this is not advisable unless it’s necessary, some may prefer the liquidity of investments over more equity in their home.

Is it better to be completely debt-free?

Imagine not having a mortgage hanging over your head – now that’s a great feeling!

If you have a fixed rate or variable closed mortgage with Cambrian, you can prepay up to 20% of your original mortgage balance every year without penalty.

Having more equity in your home (or paying your mortgage off completely) allows you to:

Borrow against your house with a home equity line of credit (HELOC)

Need to borrow money? A HELOC will have a lower interest rate than a credit card. You can pay less interest than other forms of credit when funding home renovations.

You can also use it to wipe out debt that has a higher interest rate (like credit card debt).

Lower your monthly expenses

Once your mortgage is paid off, that’s one monthly expense you won’t have to cover anymore! In turn, this frees up more funds for you to invest.

Enjoy peace of mind knowing your home is paid off

Maybe your financial priority is to be entirely debt-free - even if it means you could’ve made a higher return by investing in the market.

If you lose your job or face financial trouble, not having a mortgage payment can help you manage your finances.

And once the mortgage is taken care of, you can put those extra funds towards retirement!

Having debt can take a mental toll. If you lose sleep over having debt or worrying about how the market performs, that’s a sign you may have a low risk tolerance.

Before you consider investing, contact a Cambrian Advisor and learn more about how to navigate market volatility.

It’s important to consider your mental well-being, and eliminating your debt may be the best thing for it.

Considering different types of debt

So far, we’ve looked at whether it pays to wipe out your mortgage debt or to invest.

But what about other kinds of debt, like student loans or credit card debt?

“I always suggest paying off your credit card or line of credit before investing, because the interest rates on those products are higher,” Pushti says.

“Once those debts are paid off, then you can look at investing!”

If you don’t have the funds to wipe out high-interest debt, you can look at other options – like debt consolidation! Learn more about when debt consolidation is right for you.

The best of both worlds

Can’t decide how to split your savings? Maybe you don’t have to choose.

Divide the amount you can save each month in half; then, put one half aside for additional mortgage payments, and the other half aside for investing.

“You can put some money towards your mortgage, and some towards your investments – mix and match it! That way, you’re working to meet all your financial goals,” suggests Pushti.

How Cambrian can help!

At the end of the day, is it better to pay down your mortgage or invest? As you’ve probably gathered by now, there’s not one right answer.

The best decision for you depends on your financial situation, goals, and risk tolerance. And we can help you figure it out.

“As an advisor, we can work with you to determine how much you should put towards your mortgage versus your investments. That’s the value of personalized advice,” says Pushti.

“First, we’ll build your budget and see how much money you have leftover each month. Then, we can decide where those funds should go.”

If you’re looking for an advisor who’s invested in your financial well-being, we’ve got your back. Book a meeting today!

Disclaimers

Mutual funds and other securities are offered through Aviso Wealth, a division of Aviso Financial Inc.

Using borrowed money to finance the purchase of securities involves greater risk than purchasing using cash resources only. If you borrow money to purchase securities, your responsibility to repay the loan and pay interest as required by its terms remains the same even if the value of the securities purchased declines.

Today’s Rates

*All rates and yields subject to change without notice.
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