Part of the problem in answering lies in the fact that mortgages generally run for 20 years

or longer – and that is a long time. And during that period many different economic

environments can exist. For example, interest rates can be high , or low. In SA rates are at

record lows. Two years from now, it could all be different. Other external factors could

come into play such as cashflow needs.

Here are a few thoughts to bear in mind if you are either paying off or considering paying

off your mortgage at a faster rate than required – or, perhaps even considering paying off

the balance completely.

In the present situation we find ourselves in , people will tend to focus on the short term.

And because a mortgage is a long-term commitment we should not forget to look at the big

picture.

A fear is that inflation will suddenly revive, and this fear has been there , mostly unnoticed

since the Global Financial Market crash in 2008/ 2009. That said , SA’s inflation is currently

low - and it seems that the likelihood of a long slow recovery is not pointing towards

inflation increasing suddenly.

BUT , if we head into a period of low economic activity – and it folds into a depression –

where asset prices start to fall- then I think the question I need to ask myself is – what is

the upside for me if I repay my house mortgage faster? In a climate of declining prices I will

be aware that I am probably concentrating risk – and also its more likely that my house will

sell for less in a depression?

It might help to restating some points regarding this :

1. What you save when you repay your mortgage “faster” is always the interest rate you are

paying - say, 8%

NOW, that sort of return is not a bad investment when things are “normal”.  But, firstly,

interest rates are at historic lows, so, what I will earn will be less and less…. As rates stay low

– or decline further?

2. I have to ask where I am as regards the bond’s term – at the beginning or near the end –

more interest is payable in the former case? IF at the end I save less interest!

3. If I am increasing my equity in my house – the only way I get that money  back is when I

sell the house - which is okay – but then the question will be – at what rate will my house

price grow – and what happens if my house price – goes down - it declines in price? I will end

up owning  100% of an asset that has declined in value. Oops.

4. So given the present uncertainty an interim step might be to stick to the minimum for the

present or a little above that?

Adopting that approach contributes to the following advantages :

a) I get to keep the cash I am no longer putting into the bond capital reduction. Keeping

Powder dry stuff.

b) If things turn out differently – I have the cash which I can repay into the bond – and I am

no worse off.

c) If things turn out to be less attractive and house prices decline then I have shielded – not

saved myself to some extent from the problem above - simply by not having all my eggs in

one basket?

.

My general advice would be -think around the above……and perhaps keep your cashflow –

intact and pay less for the present?

BUT here is what I have to immediately add in . Not everyone is the same -and circumstances could

dictate a different approach. Getting personal advice on this is a good start – because any action

you take should fit your circumstances.