• Christopher Hall

5 reasons not to pay off your mortgage


A mortgage is like a job - when you don't have one, you want one. and when you get one, very soon you want to get rid of it. here are the top 5 reasons why you shouldn't completely pay off your mortgage. 1) Good debt or bad debt? When used properly, your mortgage can actually be your best wealth creation tool. Most of us have a mortgage on our home and cannot claim tax deductions for the expenses because we're living in it. While having somewhere to live is great, from a tax perspective, the mortgage is classified as 'bad debt'. however, if your mortgage is on an investment property - not the house you're living in, this is 'good debt'. it's worthwhile checking how much after-tax it's costing you. Often after the tax considerations are included, the mortgage isn't as bad as it seemed. If you've got a mortgage for an investment, then you'll only need a few more boxes ticked for the ATO to help pay down your debt. although even a mortgage over your home can be converted to 'good debt' .this takes us to the second reason not to completely pay off your mortgage 2) another wealth creation tool with your mortgage is debt recycling. when your home mortgage is designed the right way you can couple it with a small investment on the side, to rapidly snowball in size. one example of such an investment could be shares which pay dividends and those dividends pay off your mortgage at the same time you are. get advice on how to set up your mortgage re-payments to be entered and redrawn correctly. This will again ensure that your tax works for you. when in place, the mortgage gets paid off even faster because you have the side investment paying those dividends - which are growing faster and faster. The investment is effectively racing you to pay down what's left of the mortgage while you're busy getting on with the rest of life. 3) set-up hurdles. the old saying goes. you want credit when you can't get it, and when it's too available, you don't need or want it. even thought interest rates are low right now, getting a mortgage set up is more than just paying bank fees. if you've recently applied for a mortgage, you'll know that the requirements have increased significantly. the amount of paperwork and proof you need to provide is harder than it has ever been. Whether you're in-between jobs, started a new job, changed career or your job descriptions too much, or even started a family, it becomes much harder to get a new mortgage - so hold on to the mortgage facility while you still have it rather than pay off the last few dollars. the lesson here is to squirrel your lending capacity away. keeping your mortgage at hand is important, even if you have most of it sitting in the off-set account waiting for that rainy day. It means that you don't have to forage anf struggle for your access to money when push comes to shove and you need it most. 4) mortgages are cheap, so get yours to work for you. compared to personal loans and credit cards, a mortgage is cheap. savvy clients will refinance their home mortgage with the right off-set account to pay for going on that holiday or buying that new car. You can manage the off-set in two ways: 1), you can borrow the money out of your mortgage and pay it back in the years to come, or 2) when you're saving up for the car or holiday, you can put these savings into the off-set account. The savings sit there getting ready to pay for your holiday or car and actively lower your mortgage at the same time. either way you can make your savings and mortgage work for you while spending money. the fifth reasons is that 5) You don't know what you've got until it's gone. when you retire credit is very hard to get again. we see endless 50+ year-olds wanting to pay down their mortgage as they approach retirement. they see their superannuation and want to plow it like a stake into the heart of their mortgage. yes, we want to clear the decks of debt when we enter retirement. but, when you close down a mortgage completely, it's very difficult to get one back. who wants to lend money to someone with no income? that's what the banks will ask themselves. if you keep the mortgage, it will be your cheapest emergency fund possible and will prove itself worthwhile. It's worth checking how much you have left on your mortgage and re-assessing whether getting rid of it is really the best step for you. these are the top five reasons not to pay off your mortgage completely. if this resonates with you and you want to learn more get in contact with an adviser today.


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