Invest or pay mortgage?
(updated on Wednesday, August 14th 2019)
My wife and I were lucky enough to ride the wave in the very buoyant Bay of Plenty property market a few years back with a couple of units. We ended up cashing in and brought our forever home. It has a CV of $1.2 million and our debt is $350,000. Since then we have been treading water as we have a new baby and my wife has not been working. But now she is back at work and more money is coming in.
I know the likelihood of there being another boom, similar to the recent one, in the foreseeable future is slim. So my question to you is would you recommend that we increase our payments on our current mortgage or look to invest? We have been approved up to $600,000 to buy and have enough money coming in to pay our mortgage and help top up another.
Our Experts Answer:
Personally, I believe investment used correctly will take you further than straight debt reduction will. However, there are a lot of factors to take into consideration in order to make sure that is the right call for you. There are also variables here. I would argue that in most parts of New Zealand’s property market you are better retiring debt over purchasing a property at a complete retail price - but that’s where buying well is key.
At present there are a lot of opportunities to buy properties well under market value. When looking at net worth it is worth noting that the immediate equity that can be picked up at purchase level in the current market can equate to a number of years paying principal down. It is going to be a solution which needs to relate to your personal position. However, I believe that if handled correctly in most cases the investor will win over the debt reducer in this situation.
|Heartland Bank - Online||1.99|
|Kainga Ora - First Home Buyer Special||2.25|
|The Co-operative Bank - First Home Special||2.25|
|The Co-operative Bank - Owner Occ||2.55|
|SBS Bank Special||2.55|
|Heartland Bank - Online||2.35|
|SBS Bank Special||2.49|
|China Construction Bank Special||2.65|
|The Co-operative Bank - Owner Occ||2.69|
|SBS Bank Special||2.99|
|The Co-operative Bank - Owner Occ||2.99|
|China Construction Bank Special||2.99|
|BNZ - Classic||2.99|
|Heartland Bank - Online||2.95|
|Kiwibank - Offset||3.40|
|The Co-operative Bank - Standard||4.40|
|The Co-operative Bank - Owner Occ||4.40|