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Advice needed. Put extra money into mortgages or shares?

Discussion in 'Investing Strategies' started by jeffsyd, 27th Jul, 2008.

  1. jeffsyd

    jeffsyd New Member

    Joined:
    12th Nov, 2007
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    Location:
    Sydney, NSW
    This is my first post. I have been reading invested website for a while. Information here is very helpful.:)

    Now I just need some advices on whether I should put extra money to reduce my mortgages or buying some shares?

    I've just started out and bought a unit to live. I have been paying mortgages without making any extra repayments for nearly a year. I have split home loans i.e. Fixed 3 years of $160,000 (interest 7.54%) and Variable of $58,500 (current interest rate 8.98%) with offset account where i park all my savings in there.

    Just wonder whether it would be better to put some of my income for the extra repayment into the mortgages every month or instead save this money to pick up some bargain shares in the future?

    And if it's better to reduce the mortgages, should I make extra repayment on the fixed or variable loan? The variable loan has higher interest rate but i already have an offset account to help reducing the interests, whereas fixed loan has much higher propotion. I am a bit confused on this.

    My long term goal is to get more equity in my home to get an investing property in the next 2-3 years when I can afford to.

    I am such a newbie for investment. Any advices would be thankful.

    Cheers.:D
     
  2. Billv

    Billv Getting there

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    Jeff

    IMHO park your savings in your offset account.
    A saving of 8.98% is hard to beat and it's a guaranteed return.

    Cheers
     
  3. ashwright

    ashwright Well-Known Member

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    Also remember the 8.98% is after tax, so you would need 13.1% before tax (assuming you are in the 31.5% tax band) if you invested in shares.
     
  4. bennymarsh

    bennymarsh Well-Known Member

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    I agree, 8.98% after tax guaranteed return is hard to beat. Also, until your paying no interest on the variable loan (ie it's 100% offset), that is the better place to have your money.
     
  5. Elkam

    Elkam Member

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    "Just wonder whether it would be better to put some of my income for the extra repayment into the mortgages every month or instead save this money to pick up some bargain shares in the future?"

    Hello jeffsyd

    Is your offset account a 100% offset account and are you depositing all your income into this account?

    If so, unless you have $58,500 or more in the offset account there is absolutely no point in paying any of this money directly into the loan as far as interest saving is concerned. Your offset account is already covering ( i.e. reducing ) the higher interest part of your loan which is the variable part.

    This link to a good definition of an offset account may help you clarify it's use and benefits.

    http://www.invested.com.au/71/offset-account-2489/

    Elka
     
  6. jeffsyd

    jeffsyd New Member

    Joined:
    12th Nov, 2007
    Posts:
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    Location:
    Sydney, NSW
    Thanks all for your thoughts! :) Also thanks for the link.

    yes, it is 100% offset account for the variable loan.

    It's good to be pointed out about the after tax garanteed benefit for my situation, giving the current interest rate and the stockmarket climate. So I will continue to deposit my income into the offset account.

    I also have a small adventure by buying a few energy + resoure stocks mid last year and early this year for approx. $8,000 (it's up and down and i am having a bit loss at the moment). Now my plan is to wait until it's over a year since i bought them and see whether I should sell them when their prices are over what I bought. Then put that money to top up my offset account which should bring the balance up nearly close to the current balance of the variable loan.

    In retrorespect, i should have put all money in the offset rather than risking in shares for the current climate. But yes I have to try it and I learned.

    Any further comments are welcome. Thanks again guys.:D

    Cheers, Jeff