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mortgage vs shares

Discussion in 'General Investing Discussion' started by JJP, 11th Apr, 2019.

  1. JJP

    JJP Member

    19th Mar, 2019

    I thought I would bring up the topic of home loan payments vs share investment.
    I recently bought a house in Brisbane for half a mil (cheapest sold in the area recently and currently doing Reno’s).
    There is mixed opinions over wether to try and pay the loan of ASAP over investing in shares.
    Option 1: pay off the house ASAP with extra repayments - this would obviously take away the opportunity to compound over a period of time in that share market until the house is paid off which would still probably take at least 15 years. On the contrary it would save a load in interest..hundreds of thousands.

    Option 2: minimum repayments and pay off the house off in 30 years and pay more in interest than the original price of the house!
    Invest any extra cash into shares say 300 a week and compound this over time. Investing this weekly with a 10% return would work out to be about half a mil most likely more than what would be saved in interest if the house had been paid off early..

    Over a 15 year time period the house could now be worth close to a million but as always there is no way of knowing.

    Not so much looking for an answer to the question just a discussion and people’s thoughts and what they have done or at currently doing about the situation.

    twisted strategies likes this.
  2. twisted strategies

    twisted strategies Well-Known Member

    3rd Nov, 2013
    i am adverse to mortgages , but then when i took out my mortgage the interest rate was 17.5% , so you can see why .

    hopefully interest rates won't climb above 10% in the near future ( but having a plan in case it does , might be wise )

    due to potential changes to capital gains tax AND negative gearing ( and you already bought the house ) instead of just fixing up the house would value-adding be a good play ( taking advantage of the negative gearing ) you probably need to talk to your tax accountant about that .

    i put solar arrays on my properties ( and get feed-back income ) that was before home battery systems became viable ( if that has happened yet ) , but you could opt for a shed/garage ( and rent the storage space , i have seen that done ) a granny flat/office , or even rent out the front driveway as parking space ( all you need is a fence and lockable gate ).

    i have a lot of exposure to shares but i bought a lot of the in 2011 and 2012 ( when the market was much lower ) you might be waiting for 12 months or 2 years for a similar opportunity .

    for a real twist what about spending some cash in financial ( self) education , do a tax course , or financial advice course on line ( you can always choose to do that as a profession later if the job-market goes south )

    how about putting that $300 a week into the bank and take it out each month/2 months and put it where it will do the most ( in June/July it could be the share market , September/October it could be a TAFE course , some house building skills might be useful as well

    it is tough market to park cash sensibly in , so don't feel bad , just be willing to think outside the generic solutions

    i used to know one retiree ( he is now deceased ) , that grew pumpkins and watermelons on his 'hobby farm ( now days that land is a multi-billion dollar Marina development .. but it USED to be so damp you needed a plough horse to tow the car to the house from the road/highway '

    all he had to do was waiting for the planning changes ( any housing improvements would have been pointless in the long term )

    obviously if interest rate look like going north .. paying down that mortgage would become a priority

    i would suggest thinking widely and keeping some flexibility in your plans ( for say what if the ALP doesn't win )
  3. Luke Vogel

    Luke Vogel Member

    10th Mar, 2019
    OP, you've not explicitly stated whether or not your purchase was as your principle place of residence, or an investment property.

    If it is your PPOR then it would pay to pay off as much as you can as soon as you can. Private (non-tax deductible) debt does you no good.
    On the other hand, if it is an investment property then this business debt IS tax deductible and there is no real point in paying it down quickly.

    Additionally, if it is your PPOF, and you can pay it down quickly, you can always redraw (through a separate facility) the equity and use that equity to invest in shares and have the best of both worlds.

    It is a common strategy in fin planning circles to use the profits (divs and cap growth) of shares to recycle the private debt into business debt.
    twisted strategies likes this.
  4. Terryw

    Terryw Well-Known Member

    9th Jun, 2006
    What about the most effective option?

    Option 3: Debt Recycle into shares.

    Split the loan into relevant splits, pay down a split, redraw and buy income producing shares.
    Interest on the split is now deductible, if done right, and you have both bought some shares and paid down non-deductible debt.