Should You Pay Off Your Home Loan Before Investing in Property?

If you haven’t made up your mind about paying off your home loan or investing in another property, you need to take a good look at your circumstances, personal goals, and cash flow. There are many opportunities involved with purchasing an investment property and the decision can pay off quite well, especially if it gives you the chance to build long-term wealth.
Posted 3 years ago

If you haven’t made up your mind about paying off your home loan or investing in another property, you need to take a good look at your circumstances, personal goals, and cash flow. There are many opportunities involved with purchasing an investment property and the decision can pay off quite well, especially if it gives you the chance to build long-term wealth.  

Property Investment – What it Entails

Although purchasing an investment property means you will need to actually pay it off; if the property is tenanted, it gives you a source of income so you can better manage your monthly payments. Secondly, if you decide to purchase an investment property after the entire loan term has ended, you might end up missing 5-10 years of property growth (appreciation) on an investment home.  

While there are many advantages associated with an investment property purchase, there are a few things to watch out for as well.

 

What to Watch Out For

It’s important to ensure your home is always tenanted. For example, you may go through a phase of financial insecurity if your investment home remains untenanted for a long period of time. This will increase the amount of money you owe on monthly repayments.

If your cash flow looks good and you feel confident about repaying your loan, you could take on an investment property with little to no stress. If you decide to prepay your home loan by making extra payments per month, you could reduce your loan term and save on the amount of interest you’ll have to pay.

 

Reducing the Interest Owed

If you make higher monthly payments on your 30 year home loan, you could cut down the loan tenure by 10-15 years. Once you have 10 years pending on the outstanding loan amount, consider buying an investment property instead of channelling more money towards the home loan. With the way compound interest works, you’re financially better off making extra payments in the first few years of the loan rather than towards the end of the loan term.

While this sounds like a good idea, it’s important to think about what plans you have for your life and how you’re going to manage a higher debt amount. You should also compare investment home loans online to find out which product best matches your financial situation.

 

Luxury Apartments in Melbourne

If you’re on the lookout for investment properties in Melbourne, consider EBG developments’ new luxury apartments. The new housing developments are located in the heart of the CBD, a stone’s throw away from established businesses, parks and entertainment venues. They also feature contemporary fittings, plush interiors and beautifully manicured gardens. Melbourne witnessed a 3.0% rise in the Metropolitan Rent Index in the twelve months to December 2015.

Given the ever increasing demand for rental properties in the city, it’s a good idea to purchase an investment property in the CBD and grow your wealth. More importantly, we highly recommend pursuing finance advice before acting on any of the information contained in this article.

 

For more information on our projects, visit EBG online or call us on 03 8625 6400.