Should you fully settle your mortgage or keep your financial options open?
The reality is that only a small percentage of homebuyers can afford to pay for their homes in cash. The majority must rely on home loans, which can eat up as much as 30% of their monthly income in repayments.
The interest rates on home loans are notably lower compared to those on student loans, personal loans, car financing, and credit card balances. This fact alone provides a compelling reason to maintain your home loan account, even if there's only a nominal amount outstanding. Consequently, it's not surprising that many people aim to quickly pay off their home loans to attain "bond-free" status.
However, closing your home loan account entirely might not always be the wisest course of action for several reasons. Firstly, there's a strong likelihood that you'll need to borrow money in the near future for purposes such as education, purchasing a car, or acquiring another property. Utilizing your access bond to tap into your home equity will be the most cost-effective way to do so, thanks to the lower interest rates on home loans compared to other forms of borrowing.
Moreover, it's crucial to avoid the situation in which you become "house rich and cash poor," meaning you have no mortgage debt but lack the funds needed for property maintenance, including expenses like rates, taxes, insurance, and routine upkeep. As you continue to reside in your home, its value will likely increase, allowing you to access some of that equity to fund maintenance and improvements if necessary, provided your home loan account remains open.
For those who are still dedicating a significant portion of their disposable income to servicing a home loan, rest assured that this represents one of the safest investments. Paying off your home loan or channelling additional funds into your home loan account effectively eliminates an expense that isn't tax-deductible, essentially making it a tax-free investment.