___________________________________________ “Hi all, after some advice. I am lucky enough to own two properties - one overseas and one in NZ. The one
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“Hi all, after some advice. I am lucky enough to own two properties – one overseas and one in NZ. The one overseas has an interest rate of 4.99% fixed for 2 years, and the one in NZ is 6.89% fixed for 3 years. Any extra cash I have I just put onto these two properties and try and overpay as much as possible each year. I also pay into a pension and have an emergency fund. My question is – is there something better/else I should be doing instead of overpaying on the mortgages? Thanks”
(Original question on Reddit)
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The decision of whether to overpay on your mortgages or explore alternative investment options depends on your financial goals, risk tolerance, and individual circumstances. Here are some factors to consider when deciding what to do with your extra cash:
Interest Rates:
Consider the interest rates on your mortgages. The overseas property has a lower interest rate (4.99%) compared to the one in NZ (6.89%). It may be more cost-effective to prioritise paying off the higher-interest NZ mortgage first.
Diversification:
Overpaying on your mortgages is a conservative approach and provides the security of reducing your debt. However, it’s essential to assess whether you have a diversified investment portfolio. Diversification can help spread risk and potentially yield better returns over the long term.
Investment Opportunities:
Investigate other investment opportunities that might offer higher returns than your mortgage interest rates. Common investment options include stocks, bonds, mutual funds, and real estate. It’s crucial to consider your risk tolerance when exploring these options.
Tax Considerations:
Different countries have varying tax implications for mortgage interest deductions and investment income. You should consult with a tax advisor to understand how your financial decisions will affect your tax situation.
Long-Term Goals:
Determine your long-term financial goals. If your priority is to become debt-free and own your properties outright, then overpaying on your mortgages makes sense. However, if you aim to grow your wealth or achieve specific financial milestones, other investments may be more appropriate.
Emergency Fund and Retirement Savings:
It’s excellent that you have an emergency fund and contribute to a pension. Ensure that you have a sufficient emergency fund (typically 3-6 months’ worth of living expenses) and that you’re saving adequately for your retirement.
Professional Advice:
Consider seeking advice from a financial advisor who can provide personalised guidance based on your financial situation, goals, and risk tolerance.
In conclusion, whether overpaying on your mortgages is a good idea depends on your financial goals and overall financial situation. It’s generally a prudent move to reduce high-interest debt, but it’s also important to explore other investment opportunities and maintain a balanced financial strategy. It may be beneficial to consult a financial advisor to create a tailored plan that aligns with your objectives.
Hope this helps.
Regards, Clive Fernandes (Financial Adviser)
Director – National Capital
Disclosure: I am the director of National Capital, a KiwiSaver advice firm. The views expressed in this article are the views of the author. The information provided is of a general nature and is not intended to be personalised financial advice. You may seek appropriate financial advice from a Financial Adviser to suit your individual circumstances or contact National Capital.
