Not sure whether to put more of your resources toward investing or whether you should pay off your mortgage faster? This "investing vs mortgage payments" dilemma is common for many Canadians.

Investing or paying off a mortgage faster is one of the biggest questions many people want the answer to. It's a question most people struggle with in their quest for financial freedom. The truth is the answer to this question depends on different factors. Each situation is different, and you must understand your situation before you decide. If you'd like more information on whether you should invest your money or whether you should pay off your mortgage faster, then you'll find this information valuable.

Investing vs Mortgage Payments

In this post, we’ll take a look at why it might be better to pay off your mortgage first in some situations, how to do it, and why it might sometimes be a better option to invest your money first.

(Learn more about your options for investing in real estate in this post)

Should you pay off your mortgage faster?

For many people, the dream is to get out of debt and start living their lives. Waking up and not having to worry about making a mortgage payment is the dream of many. For this dream to become a reality, a person must get rid of their debts first.

A mortgage consists of two parts, and they are the principle and the interest. The principle is the amount of money you've borrowed, and the interest is the amount you have to pay for borrowing that money.

Whether or not you should invest your money or pay off your mortgage faster depends on what you're trying to accomplish financially. For instance, if you pay off your mortgage faster, you’ll get out of debt quicker and save more money.

There's also the option of investing your money while making regular payments to your mortgage, which gives you a head start on your savings. You can have an emergency fund and money if there's ever a situation that arises. The truth is there are positives to both.

The Benefits Of Paying Off Your Mortgage Faster

Obviously, the first significant benefit is that you get out of debt quicker, thus making it easier to save more money. This is not the only benefit, though, because the faster and more money you pay to your mortgage, the less money you have to pay over time.

When you get a mortgage, it typically comes with an amortization schedule. This plan determines how much money goes to the principal and how much goes to interest over several years.

Although this helps you stay on track, it causes you to pay more money when paying off your mortgage.

However, if you were to pay extra money to your principal, you would end up paying less money towards the interest on your mortgage.

(Find more information about the mortgage process in this post)

Paying off your mortgage faster comes down to paying more to the principal. The lower the principle, the less money you'll have to pay in interest. First, you must find out if there are any prepayment penalties.

Any extra cash you have should go to your mortgage. Accelerated or lump sum payments are what you do to pay off your mortgage faster.

Another benefit to paying off your mortgage faster is the financial freedom that comes with it.

By paying off your debts faster, you'll have more money to save and do other things with. Imagine being able to build your savings, invest in your children's future and have money to do things you want to do and not worry about losing everything. By paying off your mortgage faster, you give yourself this freedom.

It’s a good feeling to know you own your home, and you don't have to worry about making monthly mortgage payments.

Again though, if your situation is different, there is always the other option of investing your money first.

Investing First Mortgage After

Although getting your mortgage paid off faster is a good thing, there's another side where you invest your money while sticking to your regular payment schedule. There may be times when it's better for a person to invest first while paying their mortgages.

For instance, if you are self-employed, your mortgage interest is tax-deductible, and this deduction reduces your taxable income.

(Speaking of taxes, take a look at this post next: Edmonton Tax Assessment vs Market Value)

Also, investing your money earlier means you get to take advantage of the power of compounding earlier. In turn, this gives you the chance to have more money in the later years of your life.

The biggest problem for most people when paying off their mortgage faster is not having money in times of emergency.

It’s always a good idea to have an emergency fund. But if you are focused on paying off your mortgage fast, there could be a situation where you need money, and you don’t have it. A situation can force a person to take another loan, thus adding to their debt. So, there are also positives to investing your money first rather than pushing everything towards your mortgage.

Conclusion

The decision to invest your money or pay off your mortgage faster comes down to your unique situation.

Paying off your mortgage faster can mean financial freedom earlier and not worrying about the debt later on in life. However, it's also a good idea to continue paying your mortgage and investing your money first, which helps you build a safety net if an emergency ever arises. Take your personal situation into account first, and you'll be in a better position to make the right decision.

As always, we're here to discuss your needs when it comes to finding the perfect property for you.

Click here to get in touch with the Best Edmonton Real Estate team today!

Did you learn a lot about investing vs mortgage payments in this post? Here are three more posts to read next:

• Tips For Buying A Home In Edmonton
• Looking for a New Home? Here are the Benefits of Buying in Winter
• 3 Signs You are Overpaying for a House

This post was first published in 2017, but it was updated in 2022 just for you.