Ask Paul: Should we go into more debt to upgrade our home in our late 40s?

Dear Paul,

My husband and I have saved up around $100,000.

We owe $380,000 on our home, which has a current market value of $650,000.

We have no other loans or credit cards. We are both 47 and have two children aged 12 and 10.

We have about $80,000 in super and some money invested in shares. We both earn about $100,000 a year before tax. We both plan to work until we are 60. 

We were thinking of upgrading to a new home worth about $700,000 and using $70,000 of the $100,000 as a 10% deposit, and renting out our current home.

Is this a good investment decision? Is taking additional debt in the form of a new home loan a sound decision considering that we are in our late 40s, or should we be contributing more towards our retirement? - Jess and Calvin

A cracking question, Jess and Calvin.

At about your age, Vicki and I were scratching our heads about this one, and I know millions of other Australians are doing so right now.

As we look back over 40 years of property ownership, all in Sydney, where we have lived and worked, we only wish we could have kept all of them!

We paid $90,500 for our first semi in 1983, then sold it in 1987 for $174,000 to buy a bigger home; today it would be worth $2 million, and on goes this story.

So, in principle, yes. If history continues as it has done in the past, holding a well-located property as an investment should work.

Then again, debt can be a problem if interest rates rise, or if you lose a tenant or your job.

So what you need to do is to write a list of the positives and negatives. The positives are pretty easy: good property tends to do well. But have a think about your job security and map out a plan to cope with higher interest rates and so on.

Total security is impossible - we may get hit by a bus or an even stranger event than COVID. But my view is that with two well-paid jobs, savings, your super building with employer contributions and a plan to work to at least 60, if property is your thing then keeping one and buying another certainly has merit.

Just ensure you are happy with your debt levels. Money will not be this cheap forever.

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