INVESTING

Ask Paul: Should I invest or pay extra off my mortgage?

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Dear Paul,

I am in my early 30s, bought my townhouse in August 2021 and have a fixed $320,000 loan with a 2.09% interest rate until August 2024 and a split loan of $6000 with 5.39% variable interest.

I live with my partner but his income is inconsistent, so I'm making repayments on my own. We are planning marriage and/or a child in the next few years. 

ask paul clitheroe should i pay extra off my mortgage or start investing

I am unsure what is best financially between keeping money in savings (about $20,000), paying the extra $10,000 annually off my loan or investing.

My income is $2400 a fortnight and I'm currently putting $810 into savings each fortnight and paying extra off my variable loan. 

My partner and I did a spending course in 2021, which helped us understand where our money goes, and I've read The Barefoot Investor, but I'm just not confident and wish it were easier to grow money. 

I'm also considering investing in a financial planner but unsure how this works. Any thoughts? - Kiralee

Good question, Kirralee. What I would suggest is to consider setting up an offset account to your mortgage and putting your surplus there. 
This effectively earns you the rate of interest being charged on your mortgage, but your savings are accessible to you.

Chat to your bank or mortgage broker about this and see if this works for you.

It is great you have read Scott Pape's The Barefoot Investor. I've known Scott for a long time and strongly endorse his solid, commonsense thoughts.

My background is in advice, and I firmly believe good advice is invaluable, but I wonder whether now is the right time for you. A professional adviser will need to do a complete assessment of your situation before they can proceed to give you advice.

This requires a lot of time, and an adviser may charge several thousand dollars for a statement of advice. I would really like you to get professional advice, but you should consider the costs and benefits at this stage of your life.

I wonder if you would not be better off to keep saving, possibly through an offset account, and seek advice as your asset base and income grow.

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Paul Clitheroe AM is the founder of Money and serves as the publication's editorial adviser. One of Australia's most trusted personal finance experts, Paul has spent decades helping Australians build wealth, manage debt and make smarter money decisions. He is widely known for host­ing the Money TV program and authoring best-selling personal finance books. Since launching Money in 1999, he has played a leading role in delivering practical, independent financial guidance to Australians. Paul is chair of InvestSMART Financial Services. He was the founding chair of Ecstra Foundation, a national not-for-profit focused on improving financial wellbeing, from 2018 to 2026, and led the Australian Government's Financial Literacy Board and Financial Literacy Australia from 2004 to 2019. In academia, Paul is chair in financial literacy at Macquarie University, where he is also a Professor in the School of Business and Economics. Ask Paul your money question. Due to volume, Paul cannot respond to questions posted in the comments section.
Comments
John Collins
April 6, 2023 1.27pm

I bought a town house In April 2020, and moved in, so my other home became my second home. I sold the town house in February 2023 and moved back into my second home. Do I have to pay capital gains in my second home? And who decides how much I will have to pay?

Kind regards

John collins

Greg Whitehead
April 8, 2023 1.35am

Hi John Just saw your question. I did the same just 5 months ago and the answer is No Capital gains I believe . As you have made this your all time home regards Greg

Vic Morgan
April 7, 2023 9.23am

Not sure if anyone else can see the little red flag waving here but I think she really does need to seek advice to, not only know how she should invest her extra savings, but also to protect herself legally as the sole contributor to a dually owned property if the relationship (hopefully not) goes south.

Beverley Bloomfield
April 8, 2023 3.39pm

Can you please give me some advice on claiming unclaimed monies. I have followed all the steps but have been advised because I cannot provide account details that nobody can help. I've even sent through certified id with a list of possible address and employers where the monies may have come from. But unfortunately after several attempts over the last few years I've given up & the funds are still sitting in unclaimed monies.