When can taking a long-term mortgage be a perfectly rational choice?

Undoubtedly, paying for a mortgage is a huge burden. Financial experts suggest not taking one on if the monthly payment is greater than 50% of your monthly salary. Sooner or later, and there’s plenty of data to support this, you will lose control over your payments. What’s more – most wages are not rising in line with inflation. This means that it will become increasingly difficult to pay your mortgage from one month to the next. Nevertheless, it is possible to make the system work for you – as long as you manage to stay on top of your finances.

Beat inflation

The situation changes if you can beat inflation of course – getting promoted, becoming more qualified etc. This will garner you a higher salary and that way your monthly payment becomes a smaller proportion of your salary. Hence, it will be a smaller burden on your budget. It might even become possible to pay off your mortgage earlier than in your initial contract.

Nevertheless, this may not always be the best option. Earning more doesn’t necessarily mean that you should immediately pay down the outstanding balance.

There usually are plenty of ways to boost your extra income:

  • Your bank might offer a great rate for putting your funds on deposit
  • The exchange rates might allow for a profitable currency conversion
  • For those willing to take on a higher risk, numerous investment opportunities offer an even greater return

In that case, you might be better not to pay down your mortgage early. What that extra money could be earning you versus what you’d be paying towards the mortgage might become a great source of passive income.

The decision is yours – total peace of mind with no outstanding liability versus being a cool cat and bringing in extra bacon.

Moreover, inflation doesn’t only decrease your wage, it also decreases the value of your mortgage. Effectively, in several years time, the same amount of money will no longer buy you an identical bundle of goods. It is true that the total sum you end up paying for your mortgage may appear shocking. However, due to the very same effects of inflation the value of your property will have actually increased. This means that what you’ll have ended up paying on your mortgage is probably proportional to the new value of your property.

Sustainable earnings

Furthermore, paying towards your mortgage will be made easier by the fact that it is YOUR property, whether or not you live there. If you live there yourself, you save money on renting a property and if you choose to rent it out – the rent will pay for a significant portion of the monthly mortgage payment.

However, taking on a mortgage tends to be a good idea only if you expect to remain in a stable, decent-paying job throughout the period. Another option is, of course, if you know that your combined household income will go the distance. Otherwise you might not be able to sustain the monthly payments. Also, it might be a good idea to consult a professional financial adviser on the state and outlook of the economy since mortgages are so heavily affected by inflation, interest rates, and all that macro-economic stuff.

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