Most people have two major financial goals in their lives: to own their own homes, mortgage-free, and to save enough money that they can live comfortably when they finally stop working.
So here are some tips to help you work out the right order in which to tackle these all-important goals.
For most of us, our mortgage is the biggest debt we have. The thought of making that last payment glistens on the horizon like a mirage.
Not having a mortgage or rent to pay in retirement can make a huge difference to your quality of life, so it makes sense to priorities this goal.
When you put extra money into your home loan repayments, you can save significant amounts of interest. If you have a $400,000 mortgage, for example, on a 4.5 per cent interest rate, and pay an extra $200 a fortnight, you can save more than $80,000 in interest over 25 years.
That return is risk-free – no share market wobbles can interfere.
Then, once you’ve got rid of your debt, you can channel all the money that you previously had going on loan repayments into an investment instead. If you’re organised, you might be home loan-free before you’re 50, giving you 10 or 20 years to turbocharge your retirement savings.
Putting at least $1,042 a year into KiwiSaver can be a great way to get the most out of your hard-earned money. At that rate of contribution, you get another $521 from the Government every year – a 50 percent return that you won’t get on many other investment markets.
Plus, if you are employed, it’s a good idea to contribute at whatever level your employer will match, to maximise the benefits of the scheme.
But beyond that, there are other solid reasons for prioritising retirement planning (and investing) alongside your home loan repayments.
The first is that you may not have a clear idea of when you’ll get out of home loan debt.
Your loan may have 10 years left to run, but who’s to say that in that time you won’t want to upgrade to a bigger house, or you might not go through a life change that necessitates a move? If you decide you’ll wait until you’re mortgage-free before you start saving, you might find that point keeps getting further away until you’re facing a last-minute savings scramble.
The second reason for investing is compounding interest. The earlier you start investing, the more you have the power of compounding interest behind you to boost your final nest egg. Plus, starting early means you have more time to ride the ups and downs of the financial markets, and maybe take on a bit more risk comfortably.
Getting mortgage-free faster and plan for retirement are two important aspects of a healthy financial life. As mortgage advisers, we can help you think through your options and devise a plan that will get you to your goals as fast as possible. Always feel free to contact us.
Disclaimer: Please note that the content provided in this article is intended as an overview and as general information only. While care is taken to ensure accuracy and reliability, the information provided is subject to continuous change and may not reflect current developments or address your situation. Before making any decisions based on the information provided in this article, please use your discretion and seek specialist advice.
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