Some people pay off their home loan in record time, while others take 30 years. Which is better?
Deciding on the length of your home loan term is an important decision because it can significantly affect the amount of interest you pay, as well as have implications for equity and cash flow.
With a shorter-term loan you’ll build equity more quickly, which gives you the opportunity to generate a larger profit when you sell. With a longer home loan term you will pay significantly more interest over the life of the loan, but on the flipside, there is more flexibility and less financial risk.
For example, a 15 year loan of $430,000 at 4% interest, will cost you $142,518 in total interest paid and $3,181 in monthly repayments. A similar loan over 25 years will nearly double your interest to $250,909 and drop your monthly repayments to $2,270.
When making a decision about the loan term, think first about your financial plan and how much you can afford to spend on mortgage repayments. What level of payment can you sustain into the future? Do you have any other high-cost forms of debt? What emergency savings can you fall back on if required?
An option we sometimes suggest is to choose a loan that allows additional repayments at no fee. This allows you to select a loan with a longer term but if you are disciplined you can pay it off as if you had a shorter term.
Give us a call to find out what options are available for your individual situation.
Instead of waiting to pay off your first home, why not invest now? Investing in a second property provides a good opportunity to build wealth, but it is not for everyone.
If you answer ‘yes’ to the following questions, chances are that investing in a property might be a good fit for you.
Do you have a high cash flow?
As long as your cash flow is high, you are in a good position to buy a second property, even if you have little equity.
If you don’t have the available cash flow to fund the additional debt of a second property, you will find it hard to get ahead. For a lender to approve the home loan finance, they will look at whether you have a stable income that is capable of servicing two home loans on top of the cost of living.
Do you want to build wealth?
Investing while paying off your home loan has the potential to create an additional source of income and widen your opportunity to build more wealth more quickly.
Many people spend a lifetime paying off their home loan and never take advantage of the equity in their property. You can access this home equity to invest in property potentials, providing you with tax benefits and profit through rental income and capital growth.
Are you comfortable with risk?
It can be hard to find the courage to start a property portfolio because you fear exposing yourself to debt and risk. You can make the choice to play it safe and stay out of debt, or take the attitude that great investment opportunities warrant the risk.
There are ways to minimise risk, such as by seeking expert advice, choosing your investment property wisely and having a strong contingency plan for what to do if things go wrong. A safety buffer of 3-6 months’ worth of repayments and living expenses is an important back up if you find you can’t meet the repayments.
Answer ‘yes’ to any of the above questions? If so, give us a call and we can talk you through the options available for borrowing to invest in a second property.
With over 20 years experience in Home Loan Lending and Financial Planning, You can feel confident Cairns Mortgage Brokers will get you the best deal on the market. Call us today: 4057 9746