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We have been told for a long time now that our house debt is the very first one we do away with.Should-you-pay-off-your-mortgage-early-or-invest

As it’s our most significant debt. It’s a ball and chain, dragging you down by the ankles, binding you to mortgage repayments for decades. It makes sense that many people want to pay it off as quickly as feasible.

Is that actually the smartest way to handle your finances?


Should homeowners retire their home mortgage totally before they start to consider other investments, like property investment or investing in the share market?

For some individuals, this could make sense. If you are risk adverse, or expect that your income may be going down in the future or there are other compelling reasons for you to free yourself of your mortgage commitment, then that may be the ideal way to proceed.

However when you do not invest due to the fact that you wish to pay off your home first, you can pay a large price.

It’s called an opportunity cost.

This is just another way of saying: how much will it cost you to wait 10 or 20 or even 30 years before you begin to invest?


Just how much profit and also market growth will you lose out on, by waiting?

Consider it this way: if you purchased your home in Brisbane 10 years ago, and also waited till you had it fully paid off before you made a property investment, you would certainly still be waiting to acquire that property investment. You ‘d probably still be 5 years, 10 years or more years from paying out the first property.

However  you could have used some of your equity to purchase a property investment 3 or 4 years ago.  Then you would  have had 2 quality residential properties, both increasing in value.

Your wealth would certainly be much grater with 2 residential properties than it was with 1, despite the fact that you have actually taken on more financial obligations.

That capital appreciation on the investment property or profit is the “opportunity cost” you will lose out on, if you wait until your residence is totally repaid before you invest.

So how can you safely invest before you own your residence outright?

How can you utilize your home equity safely, so it does not impact your way of living today as well as enables you to buy an investment property (or even build a property portfolio) at the same time?

The idea is that people must repay their mortgage sufficiently to be able to avoid paying Lenders Mortgage Insurance.

This works when you borrow no more than 80% of your property’s value, then you withdraw some equity to acquire an investment property.

Let’s say your home is worth $800,000 and your loan is $500,000. A  loan worth 80% of its complete value is $640,000.

If you owe $500,000, you are entitled to borrow an additional amount of $140,000 against your own home to utilize as a down payment on and investment property.

A few tips for people who are considering this technique:


  • You will want to secure a principal and interest loan on you principal home. This is important as it means you’re paying off the major financial debt from day 1.
  • With the Investment property you will want to obtain an interest only loan. This is a tax-deductible debt so this is the smartest way to take advantage of your financial position.
  • Any additional money you would have paid into your interest only debt should be directed towards the non tax deductible home loan on the principal place of residence. This way, you help to repay your home loan faster.


What are the traps the inexperienced should know about?

It is very common that people who are not aware of the rules often don’t structure their financial debt properly and end up with loan products that do not fit them or that restrict their borrowing capacity.  Which can have a massive impact on your ability to grow your portfolio of properties.

To best leverage your loans for both your home and investment properties, it’s optimal to set up the appropriate frameworks as well as loan functions at the beginning. This is why collaborating with a home loan broker as well as an accounting professional can be so effective, it can save you from making blunders now, that can cost you thousands, tens of thousands or even hundreds of thousands in lost earnings, missed opportunities as well as unneeded charges down the track.


If you are thinking about entering the Investment Property Market then talk to the team at Hicks Real Estate.

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Hicks Real Estate is a Brisbane based, full-service real estate agency supporting buyers and sell as well as renters and property investors. With almost 20 years experience in the local market, we are the real estate experts you can rely upon.