Should you pay off your mortgage first or buy an investment?

There is high probability, that paying-off your mortgage and being financially free as soon as possible will give you significant peace of mind.

Paying off your own home is a significant achievement which with the right repayment strategy, is doable lot sooner than your 30-year loan term.

However, while you’re working on paying down your mortgage, you might also be considering, when and if you should add an investment property to your portfolio.

For many Australians, mortgage debt on their place of residence, is something that should be paid off as quickly as possible, before considering an investment property purchase.

In addition to this, many Australians tend not to have a plan in place that reduces their home mortgage quick enough, resulting in them not progressing beyond owning their own home.

Should your pay off your home or buy an investment property as soon as you can?

Having a home as well as an investment loan just requires better financial management through wise choice of investment property managers and the right lender.

This means getting yourself into a position where your money is working as hard for you as possible – whilst also being careful not to overextend yourself financially, to the point where you’re surviving on two-minute noodles in order to meet your financial obligations.

One common mistake that many people make in this regard is borrowing at maximum capacity. Getting the biggest loan affordable from a bank’s point of view is not a good idea, especially if you have a tendency to splurge on luxury lifestyle.

Determining your actual financial capacity enables you to manage your debt better and evaluate future steps and plans. When dealing with debt, it all comes down to mindset and attitude towards handling and tackling more debt.

If you do decide to buy an investment,

1.     don’t borrow more money than you can afford,

2.     make sure that investment outgoings are reasonable (property managers charging 7% plus a monthly admin fee is not) in relation to rental income and,

3.     build cash reserve buffers to protect yourself against uncertainties.

It’s naive to assume that investing is not a risky business, however planning for the worst and hoping for the best helps to minimise some of the risk.

This is why it’s essential to have a clear plan at the beginning of your journey – regardless of whether you decide to pay down your mortgage before investing or not.

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This article does not constitute advice; readers should seek independent and personalised counsel from a trusted adviser that specialises in property, a tax accountant and property design specialist.