Ask Paul: I owe $220k on the mortgage, my wife has $75k in a term deposit


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My wife (28) and I (30) are recently married and looking at investment options.

I own the property we are living in, which I bought it as an investment three years ago and was negatively gearing until we moved in earlier this year.

I owe about $220,000 on the mortgage (4.29% interest rate). Repayments are $1200 a month and we are paying $1600.

With just $70,000 left on their mortgage, should Alicia and her husband buy an investment property, invest in shares or stockpile cash for the future?

I am studying (high school teaching) full-time and working part-time with plans to graduate at the end of 2020.

My wife is working full time, earning $97,000 before tax. She has never bought a house but has $80,000 invested in shares and $75,000 in a term deposit, earning 1.65%.

We don't plan to have kids in the next two years and are considering what may be our best way forward financially.

The options we are thinking of are to pay off the house using my wife's shares/cash; look at using her shares/cash as a deposit on another house as we don't plan on being in our current place long term (one or two years); or invest in more shares, keeping our debt to a minimum.

Any thoughts? - Scott

For two young people, what an excellent position to be in financially, Scott. I am also delighted you are studying. Education, in particular while you are young, is a key to future financial independence.

The first step I would argue is to pop your wife's term deposit money into your mortgage via an offset account so it is easily available. She is currently earning a taxable 1.65%, which is a terrible rate - it should be over 2%.

In the mortgage it will be effectively earning 4.29% tax free. I would hang onto the shares based on the argument that they should return more than the 4.29% you are paying on your mortgage.

The property market looks to be flattening out, or at least not getting worse, so I would suggest it is a pretty good time to buy the place you want to live in for some time.

After the recent cuts, you should get a homeowner's mortgage at around 3.4% if you choose to go that way.

Clearly, with your wife's $155,000 you have a great deposit.

The question becomes: can you retain the current property as an investment and still purchase the home you want without going into silly amounts of debt.

Here you need to sit down with your current lender and crunch some numbers.

While you are at it, tell them to improve on the 4.29%, if they have not already.

If you can keep your current property without over-stretching, that will be great in the long term. But if logic dictates it has to go, that is also OK.

Naturally, do your research and buy in a growth location with terrific transport and facilities such as decent coffee.

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Paul Clitheroe AM is founder and editorial adviser of Money magazine. He is one of Australia's leading financial voices, responsible for bringing financial insight to Australians through personal finance books, the Money TV show, and this publication, which he established in 1999. Paul is the chair of the Australian Government Financial Literacy Board and is chairman of InvestSMART Financial Services. He is the chair of Financial Literacy at Macquarie University where he is also a Professor with the School of Business and Economics. Click here to ask Paul your money question. Unfortunately Paul cannot respond to questions posted in the comments section. Please view our disclaimer here.

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