Ask Paul: Pay off current home or upgrade now?

Alita: I am 36 and earning $68,000 and my husband is 38 earning $70,000.

We have a mortgage, owing $323,000, on a two-bedroom unit in the ACT and $5000 in savings.

Given that interest rates are low, we are looking at getting back into the market for an independent, bigger property.

I am concerned whether it would be wise to save hard for another year and jump into the market or wait a few years and pay off our current home instead.

I am also tossing up between buying just the land and building later if we do go down the path of buying a second property.

Will that be a smart move? We don't have kids yet.

Paul: Alita, this is a really challenging question.

If property were to continue to go up, you would want to buy now. But if it goes down you would not!

The property market has split in Australia. Melbourne and Sydney in particular have been booming.

Perth is weak while rural residential property (but not farmland) is generally flat. The ACT has been strong.

Given that interest rates are moving up in the US and this will affect us, I get the argument that property prices may fall.

But in the medium to longer term, the driving factor is population growth. This we have in spades. So while prices may go backwards, or slow, our rapidly growing population will lead to more demand over time.

My rule of thumb is to buy if you can do so without over-borrowing and you have a long-term time frame.

To argue that prices will be lower in, say, 10 years is very difficult.

So if you buy and do not have to sell if rates rise, my view is that no one knows where the market is going, so buy a well-located property and plan to hold onto it.

I am not a fan of vacant land. It costs you to hold it and produces no income.

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