Put your money on your mortgage

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The best thing to do with spare cash is to put it towards paying off your Sydney home loan more quickly, according to financial planning experts.

Making additional mortgage repayments is the best way to put yourself in a better financial position

Andrew Heaven of AMP told the Sydney Morning Herald: ”You can’t save and have debt at the same time.”

Putting money on the mortgage has the benefit of low investment risk, low costs and the effective investment returns will beat just about anything else on the market, he said.

Financial planner Greg Pride agreed: ”To generate an after-tax return of seven per cent you would need a ten to 12 per cent return elsewhere to beat knocking out the mortgage,”.

He explained that putting $5,000 into your mortgage redraw or offset account is effectively earning an after-tax return equivalent to your home loan interest rate.

Mr Heaven also recommended creating an offset account tied to the mortgage if you do not want to tie up the money in the home loan directly.

One suggestion is to have your pay go straight into the offset account to save interest- the money in the account reduces the balance of the mortgage on which interest is calculated.

 

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