Should I pay off more of my own home loan or Invest in another property?
This is a question many homeowners face. Ultimately, it depends on your financial situation and long-term goals as to whether you funnel your funds into your home or an investment property.
Here are some key considerations to think about before deciding what’s suitable for you.
How much do you owe on your home?
If your mortgage is more than 80 per cent of the current value of your home, it may be worthwhile working towards paying down your home loan and increasing your equity to position yourself better for future investment.
Why could it be beneficial to pay off your home loan?
There are all sorts of benefits to making extra repayments and paying off your home loan sooner.
For one, you’ll pay less interest over the course of the loan, while at the same time increasing your equity, which in turn can be used for things such as future investment or renovations.
You may consider paying down your home loan if you:
- Are not a great saver and tend to spend money on discretionary things you don’t need (like a new boat!) and you want to make better use of your money to get ahead financially
- Are close to retiring and still have a substantial balance on your mortgage
- Hope to release guarantors on your mortgage
- Want the peace-of-mind of being debt-free sooner, rather than later.
It also pays to keep in mind that there may be limits on how much extra you can repay on your home loan, in a given period, so ask your broker or lender for clarification to avoid penalties.
Why you should consider investing in property
Some people decide that investing in property is more important to them than paying off their mortgage faster.
There are many perks of buying an investment property.
Some people do it for the capital growth – the potential for the property’s value to increase over time – while others invest for the rental returns or for the tax benefits.
If you owe less than 80 per cent of your property’s value, you may be able to use your equity as a deposit to buy an investment property.
Consider your Superannuation as an investment strategy
Another option is contributing to your superannuation.
With concessional tax rates on contributions, this can be an effective way to build wealth for retirement, particularly for those concerned about their long-term financial security.
Determining what’s right for you
It’s important to consider what your long-term goals are before deciding what’s right for you.
If your priority is to be mortgage-free, rather than taking on more debt, you might decide not to invest and to pay off your home instead.
But if you’re looking to channel your extra money into a prospective wealth-building asset, you may consider buying an investment property.
It’s a good idea to speak to a financial adviser or accountant about the best ‘big picture’ financial strategy for you.
And when it comes to the finance side of things, we’re here to help.
We can suggest ways to pay off your home loan sooner or line you up with the right investment loan for your needs, depending on what you decide.
Your full financial needs and requirements need to be assessed prior to any offer or acceptance of a loan product. Credit Representative 522752 is authorised under Australian Credit Licence 389328.
