To pay off or invest, that is the question
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If you are a homeowner, there may come a time when you will be faced with two decisions – one is to pay off your home loan, the other is to invest elsewhere.
Odds are that circumstances would have changed since you first acquired your home and a loan to service the debt. If you are 10 to 13 years into your loan, you would usually be earning more money and have extra funds to invest.
With so many homeowners facing the same situation, Members Alliance CEO David Domingo shares his advice on what to do when reaching that point.
Understand the type of debt
At this stage you should have the expertise to make sound financial choices. But if you have accumulated bad debt, paying it off is the first step to making the decision whether to pay off your home loan or invest elsewhere.
Bad debt usually resembles things that depreciate and offer no tax deduction for having purchased them. It typically includes cars, televisions and credit card debt.
You should aim to pay off your bad debt as quickly as possible. By accelerating the reduction of your bad debt you can reduce your total interest payments.
Make the most of your extra cash
As an established borrower, you should use your extra cash to pay off your home loan, as well as build wealth through other investments.
Dividing your cash between your home loan and your superannuation fund will give way to a number of benefits you will start to see now and in the future.
While making higher or more frequent repayments on your home loan will allow you to slash the overall interest and cut your loan time by a considerable amount, almost all homeowners do not have the additional funds to do so.
You could also commit your extra cash for salary-sacrifice contributions into your super. Income for your retirement comes from a solid financial plan and early investing activities, so acting now will ensure you have a secure financial future.
Paying off your home loan and investing in your super at the same time will create a welcome boost to any wealth creation plan.
Use the power of leverage
Once you have channeled that extra cash into your home loan and your retirement nest egg, you should think about leveraging the equity in your home to expand your assets.
Many Australians don’t realize their financial potential, and it’s at this time when the financial decisions you make will have the greatest impact on your lifestyle during retirement.
Using the equity in your home to invest in property is one of the safest ways to build wealth.
This advice should be used as a general guide only. Talk to a Financial Advisor at Members Alliance on 1300 365 731 to develop a wealth creation plan specifically tailored to your financial situation.
Company: Members Alliance
Phone: 1300 365 731
Address: Levels 1-5, The Rocket Building
203 Robina Town Centre Drive
Robina, QLD 4226 Australia
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