Is it in our interest to pay as much off our mortgage as soon as we
can, or should we use our equity and buy an investment property?
Q.
My husband and I are both 40 years old and we have three
children. We have a mortgage of $340,000; our house is valued at
$850,000. We currently earn a combined income of $85,000 and are
able to make double the repayments at the current low rate of
4.99%. Is it in our interest to pay as much off our mortgage as
soon as we can, or should we use the equity and buy an investment
property? We have no other accumulated debt (except the three
children!)
A.
We appear to be near the bottom of the interest rate cycle so at
this stage I would focus on reducing the debt as fast as possible.
Once you reach a situation where you can pay $12 per thousand a
month (eg: $3600 a month on a $300,000 loan) you could consider
borrowing for investment. When you do, think about borrowing for
shares, because you have a large equity in your home which would
enable you to borrow using a home equity loan which would free you
from the possibility of margin calls.
Each week financial advisor Noel Whittaker answers your
questions.
