We all love the idea of being debt free and finally having the financial freedom we long for. Imagine all the things you could do instead of paying off your home loan; that money can now go towards holidays, a new car or finally renovating the kitchen, right? Yes – to a degree, on the surface it’s a no-brainer after all your mortgage is most likely the biggest debt most you will ever have, so it would make sense to eliminate it as early as possible. However, how much financial sense does it make to do so?
Taking into account what your financial goals and retirement plans are could mean it might be worth considering investing in property instead. While you may potentially be taxed on the money received from an investment property, having an additional source of income will allow you to not only pay off your home-loan, but pay it off much quicker than you think in addition to providing stability later in life and truly giving you the financial freedom you’re after.
If opting to pay your home loan first you won’t have to worry about interest rate fluctuations over the amortization period, which is the life of your home loan plus once the loan has been paid off you will have extra untied-up funds to spend or save as you desire in addition to enjoy the rewards of the capital growth of your home.
On the flipside, all your money is in one asset and with no additional long-term income stream you may not have opportunity to increase wealth down the track through property ownership as your current home will just be keeping up with inflation. Another thing to consider is that if you require to sell you’ll still need to purchase another property to live in. We all know real estate is ever-changing and lots of things can occur in the lifespan of a home loan, so even if you sell at a profit you may still be at risk of not keeping up with the current market price-point. In addition to this the terms of your home loan may penalise you with additional fees for paying off the loan early.
When deciding to invest your money in the property market you will provide yourself with an additional source of income and create opportunity to build wealth much quicker and in a less complicated manner to other investment strategies. Not only will you have an increased diversification of assets with your money not being all tied up in one place you will also receive tax deductible benefits and financial security when it comes time to retire.
Investing in property is pretty straight forward, however keep in mind that in order to reap the rewards you must also put in the work. A good investment is a tenanted investment and in order to attract the right resident you will need to dedicate time and care to effectively manage your asset.
Ultimately, any investment has its amount of risk and reward associated with it, so it’s important to do your homework and see which route is the most suited for you.