To pay more off your home loan or invest in another property? It’s 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 of the key considerations to think about before deciding what’s suitable for you.
How Much Do You Owe on Your Home?
If you still owe a fair amount on your home loan, you may need to put plans for an investment property purchase on ice, at least for the time being.
If your mortgage is more than 80 percent of the current value of your home, it may be worthwhile working towards paying down your home loan and increasing your equity. Equity is the difference between the value of your property and the loan balance.
The Case for Paying Down 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 available equity. You may even use your available equity to do renovations on the property and increase its value.
You may consider paying down your home loan if you:
- Tend to spend money on things you don’t need and want to ensure you put any extra funds towards something useful, like paying off your home,
- Are close to retiring and still have a way to go to pay off your mortgage,
- Hope to release guarantors on your mortgage, or
- Want the peace of mind of being debt-free sooner rather than later.
Remember, if you do focus on paying off your home loan before investing, you can always revisit property investment down the track.
The Case for 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 to buying an investment property. Some people go into it for the capital growth – the potential for the property’s value to increase over time. Others invest for the rental returns or the tax benefits.
If you owe your lender less than 80 percent of your property’s value, you may even be able to use your equity as a deposit to buy an investment property.
Determining What’s Right for You
It’s important to consider what your long-term goals are before deciding what’s right for you.
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, get in touch with a mortgage broker. They 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.
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