Should I pay off my home loan or buy another property as an investment?

Answer

Some people prefer to wait until their home loan is repaid before thinking about investing in property. Your approach will depend on your goals and circumstances. 

Whatever you decide, it’s worth considering how continuing to invest while paying off your home loan may help build your wealth sooner, although there are risks involved. The table below provides a few examples so you can compare some of your options.

Paying off your home loan only Investing while paying off your home loan
Less diversification―all your eggs are in the same basket Increased diversification
You have no additional long-term income stream There is the potential to create an additional source of income
You have no extra income to apply to your home loan Using a debt recycling strategy you may be able to pay off your home loan sooner. However, if an investment fails to provide adequate income it will not help you repay more on your home loan
You have no extra opportunities to build wealth; although capital growth in your home is likely You have greater opportunity to build more wealth more quickly
Reducing your overall debt means you’ll have less responsibility for debt and therefore less exposure to financial risk You’ll need cashflow to support your investment loan when your investment property is untenanted and given you are taking on more debt, you’ll have an increased exposure to financial risk
If you wait and invest later in life, there’s the chance your investments won’t have time to grow and provide as much income as they may if acquired earlier Your investment property has a chance to become positively geared and generate an income (which will be subject to tax). You will have more debt and the risks you may be exposed to will increase
You have no opportunities to claim tax deductions You have the opportunity to gain tax benefits from a negatively geared investment

 

Important information

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It’s important to consider your particular circumstances and read the relevant Product Disclosure Statement or Terms and Conditions before deciding what’s right for you. This information hasn’t taken your circumstances into account.

This information is provided by AMP Life Limited. Read our Financial Services Guide for information about our services, including the fees and other benefits that AMP companies and their representatives may receive in relation to products and services provided to you. All information on this website is subject to change without notice.