Focus on mortgage repayment with a 5.45% interest rate for financial security. Consider real estate's potential for diversification but be wary of responsibilities. Embrace the stock market's long-term growth potential with diversified investments. Consult financial professionals for personalized guidance aligning with your goals.
___________________________________________
“My wife and I are 28 years old. Joint yearly income is 240k before tax. We owe 440k on our 1.2m house. Currently, we have upped our payments to as much as we can afford to try to pay this loan down in 7-8 years. The current interest rate is 5.45%, locked in for 1.5 more years. We are very focused on saving money and goal-oriented. We have been pre-approved for a 1 million dollar rental. Looking to buy 1 hour north of Auckland (where we live). We don’t know if we should keep paying our mortgage down as fast as we can or invest in a rental or even SP500.”
___________________________________________
I can provide some general financial advice for your situation. However, it’s important to note that individual financial decisions can depend on various factors, such as your risk tolerance, long-term goals, and personal preferences.
Mortgage Repayment: With a current mortgage interest rate of 5.45%, aggressively paying down your mortgage is a sound strategy. It not only saves you money on interest payments but also brings financial security by owning your home outright sooner. Since your interest rate is relatively high, focusing on mortgage repayment can be an effective way to reduce debt. Prioritize this, especially if you have other high-interest debts, like credit card debt that should be tackled first. You can significantly shorten your loan term by making extra principal payments and saving thousands in interest over time.
Real Estate Investment: Purchasing a rental property can be a valuable addition to your investment portfolio. It provides the potential for rental income and property appreciation. However, be aware of the responsibilities involved, such as property management, maintenance, and tenant dealing. Also, location is critical; consider the potential for rental demand in the area you’re considering. Rental income can be a stable source of cash flow, but you should have a buffer for vacancies and unexpected expenses. Diversifying your investments is essential, so consider how real estate fits into your overall portfolio.
Stock Market (S&P 500): Investing in the stock market, such as the S&P 500, offers the potential for long-term capital growth. Historically, it has provided a solid return on investment, but it’s essential to understand that stock market investments come with risk, and the market can be volatile. Diversification is key. Consider your risk tolerance and create a balanced investment strategy that may include a mix of stocks, bonds, and other assets. Keep in mind that stock investments are typically for the long term, so be prepared for market fluctuations.
Consult Professionals: Your financial decision should align with your long-term goals and personal circumstances. Define your objectives clearly, whether it’s early retirement, financial security, or wealth accumulation. Consult with financial advisors who can provide personalized guidance based on your unique situation. Additionally, assess the tax implications of each option. Mortgage interest payments may offer tax benefits, while rental income and investment returns may be subject to taxes. Ensure you have an emergency fund to cover unexpected expenses before making significant investments. A well-balanced financial plan that combines mortgage repayment, real estate investment, and stock market participation can help you work towards your financial goals.
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.
