Should we buy an investment property in the current economic climite or keep paying extra repayments into our home mortgage and pay off the home loan first?

Q.

We have $200,000 left on our home mortgage to pay off (house worth about $450,000). We can purchase an investment property worth up to $450,000 (an interest only loan has been approved by our credit union). Should we buy an investment property (negatively geared) in this current economic climite or keep paying extra repayments into our home mortgage and pay off the home loan first? We currently pay about $600 extra a fortnight into the home loan and can probably increase this extra to $800 - as this extra sits in our savings which is offset to the mortgage.

I have long recommended that the optimum home loan repayment is $12 a thousand a month because this is around a ten year term provided rates stay between 6% and 9%. Once your loan is down to a ten year term you can gain more by borrowing to place more assets under your control than you can save in interest by increasing repayments on the housing loan. Therefore, provided you can pay $2400 a month on your housing loan, I see no reason why you should not borrow for an investment property provided you have the skills to research the market to ensure you get a bargain. Just make sure the investment loan is interest only to maximise the tax benefits.