Your mortgage is usually good debt. The interest rate is usually rather low and there is usually litlle money to earn from paying of the mortgage. In most cases it is best to only make the required payments. Below I will explain why that is and when it might be worth to make extra payments on your mortgage.
Please note. This is article assume that you have a normal low interest mortgage. If you are stuck with a high interest mortgagem a subprime mortgage or similar then it canh be a very good idea to try to eliminate this loan. Start by trying to see if you can get a better lower mortgage in another bank. If you can you should try to move your mortgage there. If not you should try to pay it off.
Mortgages are cheap credit
It is usually not worth paying of your mortgage early. The reason for this is that mortgages tends to be a cheap type of credit. It is usually easy to invest your money in ways that allow you to earn a higher return on your investments than what you pay on your loan. The historical avarge return on the stock market is over 10% a year. Most banks only charge 2-4% interest on their mortgages. This means that you will earn money by investing your money instead of paying of your mortgage.
Generally speaking you should never pay down your mortgage if you can earn a high return investing your money in a low risk investment. Your networth will over time become a lot higher if you invest this money instead of paying of your mortgage.
The reason that mortgages tend to be cheap credit is that a mortgage is a safe investment for the bank since the house is colleteral for the loan. If you fail to make your payments they can take your house and sell it to get their money back. The bank do not want to take your house. They prefer it if you make your payments. This allows them to earn more money. But they know that they can get the money back by sekking the house if they have to. You have the right to the difference if the house sells for more than the outstanding debt.
When to make extra payment
It is sometimes beneficial to make extra payments on your mortgage to reduce your debts. Below we are going to look at some of the most common situations when it can be beneficial to pay down your debt.