2019-05-01 Money Australia

A

hh,“ShouldI payoffmymort-

gageorinvest?”If I hadto

declaremyfavouritemoney

managementquestion,this

wouldbeit. Why?Becauseit

hasthepotentialto befinanciallylifechanging.

Lifechanging?Well,howdoesmorethan

$2.4millionover 30 yearssound?

A figurelikethatshouldraiseyourcuriosity

levels.NowI’mnotautomaticallysuggesting

thatwhatyou’reaboutto seeillustratedis going

tobethesameforeveryone,becauseit won’t

be.I alwaysrecommendyouseekprofessional

advicetogetyourownnumberscrunched

beforedoinganyinvestingbecauseit’sa big

financialdecisionandonethatyouneedto

fullyplanforandunderstandtoensureit’s

therightthingforyou.

BeforeI sharewithyouexactlyhowthis

is possible,let’sfirstrecognisethetwomost

commonhouseholdbeliefs:

• Youshouldpaydownyourmortgagedebt
  asquicklyaspossible.


• Youcan’taffordto investin propertyand
  alsopayoffyourownmortgage.
  Fromtheoutset,theseassumptionsseem
  valid,don’tthey?
  Forone,a largechunkofourhard-earned
  moneyis alreadyfeedingthemonthlyrepay-
  mentsonthemortgage– surelythere’sno
  roomtotakeonanotherone?Plus,youdon’t
  reallywantdebt“hangingoveryourhead”
  forever,right?
  I getit – holdingdebtis themajorreason
  whymostofusdon’ttakethispath.Paying
  offthemortgagemakesusfeelasif we’re

makingprogress– you’reseeingyourdebt

goingdown– whereasbuyinganinvestment

propertymeansmoredebt.Debtthat,without

firstcrunchingthenumbers,mightfeelas

if you’llneverpayit offand,intheprocess,

you’llenduppayinga hugeamountofmort-

gageinterest.

Thepotentialproblemwiththislineof

thinkingis thathouseholdswaittoolongbefore

theystartinvesting.Theydon’tgivethemselves

enoughtimetobuildaninvestmentnestegg

bigenoughtosustainthequalityoflifethey

mightbeenjoyingnow.Myadvicehereis:be

carefulofmakingfinancialdecisionsbased

onfeelingsratherthanthenumbers.

Withthatinmind,let’sgetbacktothe

$2.4millionquestion:“Whyshouldyouprioritise

investingin propertyratherthanpumpingall

ofyourcashintoyourmortgage?”

BENKINGSLEY

SOLET’SMEETALANANDJULIE.

Here’swhattheircurrentfinancialpicture

lookslike:

They’rea mid-30scouple,eachearning

$60,000a year.

Totalincome:$120,000gross= netincome

of$96,766.

Theirhomeis worth:$665,000.

Currentmortgage:$400,000.

Annualmortgagerepayments:$35,505

(4%interest,principalandinterestrepay-

ments,with 15 yearsremainingontheoriginal

30-yeartermloan).

Annualhouseholdexpenditure:$ 47, 4 0 0

(bills/spending).

Totalannualoutgoings:$82,905.

Annualhouseholdsurplus(cashflow):

$13,861($1155.08a month).

OPTION 1

Payoffthemortgageonly

Asdemonstratedin thetable,if AlanandJulie

committotrappingtheirsurpluscashflow

of$13,861tomakeextrarepaymentsontheir

mortgage,andthencontinueto trapthissurplus

overthe30-yearmodelledterm,theirfuture

valuepositionwillbe$7,114,924.Intoday’s

dollarterms(allowingfor3%inflation)this

willbe$2,931,254.

Onthemortgagefront,byfocusingon

payingit offsooner,AlanandJuliewouldpay

offtheentireloanearlyin animpressivenine

yearsandonemonth,insteadofthe 15 years

remaining.Thiswillsavethem$51,796in

mortgageinterest.

Nicejob,right?

Pay off mortgage only

Ye a r Family home Debt savingsCash/ position Net

0 $665,000 $400,000 $- $265,000

1 $711,550 $367,751 $- $343,799

5 $932,697 $210,007 $- $722,690

10 $1,308,156 - $52,991 $1,361,146

15 $1,834,756 - $399,221 $2,233,977

20 $2,573,340 - $835,439 $3,408,779

30 $5,062,150 - $2,052,774 $7,114,924

Source: Empower Wealth modelling.

WHEN DEBT IS YOUR $2.4M FRIEND

By leveraging the equity in your home you can start investing in

real estate and transform your financial wellbeing. The secret is

to make decisions based on numbers, not feelings.

PROPERTY • SHAREMARKET • SUPER

PROPERTY