Often, it makes me cringe when I see people paying off their home loan.
Yep – you read that right – paying off your home loan is a bad idea. But hang on you say – this goes against everything everyone has taught you! Your parents, friends, teachers, advisers, mentors – damn even the banks themselves have said knockdown that mortgage.
Well, there is a lot to be said in the value of owning your own home. And for many of us kiwis it is the great kiwi dream. But for the sake of a different perspective, I want you to picture this.
I'm gonna be mortgage free!
Let’s say you own a home – well done 🙂
And you tell yourself – I’m going to be mortgage free in ten years baby oh yeah!
So you start saving.
You work hard, save hard, cut back on everything, take a toilet break when it’s your turn to buy a round of drinks and skimp on everything else so you can make extra payments on your home loan.
And then you pay off your mortgage in ten years. And the day arrives! And you become Mortgage free. And you have a party (and your friends cash in on all the rounds you neglected)! And it feels awesome. But what happens next?
Well, this is where most people make mistakes.
What most people do next is what makes me cringe and shake my head.
Most people usually do this.
They use their home as security to go and buy an investment property. Hang on whats wrong with that you ask? Well, think about it for a minute. You just spent ten hard, strenuous years paying off the debt on your home. Now you want to be an investor – so – you are going to borrow against the very thing you’ve just paid off! You’ve just decided to undo everything you spent the last ten years working on!
Why on earth would you want to pay off your home just so you can go and re-mortgage it again?
Most likely because that’s how you have been taught. Pay off your house PRONTO, then if you have time, re-mortgage it and buy an investment property.
But heres the thing.
In that same time period of ten years, you could have purchased one or two or even three more properties. And in that time years, you could have 7, 5, 3 years capital growth and if you have purchased right, passive income.
Owning your own home when you retire
Most of us manage to pay off our mortgage just in time for retirement. But owning your own home when you retire essentially means you have a paid off house. Unfortunately it still costs you. Rates, insurance, maintenance – they still tick over – but now you have to pay them off with just your pension.
Instead, if you had invested the right way in property instead of spending all your money paying off your house – by the time you get to retirement, your investments should be giving you a healthy passive return. But for so many of us this is not the case. And we retire broke living off the pension which is just $411 a week.
Property investing can be for everyone, it can deliver long term asset growth and generate passive income, as long as you know what you are doing. And the sooner you start, the better.