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Pay off homeloan or invest?

Posted: Sun Jan 21, 2018 2:29 am
by Mues
Hi all,

Mid 30’s. 1 kid. 1 wife :p. Household income has gone up a lot recently and is near 300k. Live in Australia.

Currently we have 250k in non taxable retirement accounts and are maxed out for paying in.

We have a house that’s worth about 850k and only 200k left of debt.

We are moving to a rental because my wife doesn’t want to sell our place but we have outgrown it. Bogleheads advised against spending 1.3 mil in an inflated property market for a new house so we are not doing that. We will rent the house we own out, and use that rent to pay the rent on a house that’s worth about 1.4mil.

Anyway. This leads to the question. I am thinking of just paying the minimum on the loan and investing into a conservative fund instead of continuing to pay it down as fast as I can. Something 50-50 bond-stock or 60-40.

My current budgeting on about 300k is
Bout 90k tax
50-60 into the tax free retirement fund. (We only have 250k current due to earning less and being away 5 odd years)
90-100k left for investing.
Other 50k odd gets spent on life.

My reasons are-
1. Interest paid on a loan for a house I don’t live in is tax deductible in AU. Since I’m in the top tax bracket this will offset the tax I pay on the rental income.
2. Feel like with 850k of house I want to get more money into non real estate investment.

Anyone done a similar thing? Did it work for them?

Re: Pay off homeloan or invest?

Posted: Sun Jan 21, 2018 6:28 am
by mortfree
Pay the minimum required monthly payment on the existing home. Do not pay it off early.

You have 650k in real estate and 250k in actual retirement dollars.

Time to build up your investments and savings.

Good job

Re: Pay off homeloan or invest?

Posted: Sun Jan 21, 2018 9:15 am
by Rowan Oak
Mues wrote:
Sun Jan 21, 2018 2:29 am
Hi all,

Mid 30’s. 1 kid. 1 wife :p. Household income has gone up a lot recently and is near 300k. Live in Australia.

Currently we have 250k in non taxable retirement accounts and are maxed out for paying in.

We have a house that’s worth about 850k and only 200k left of debt.

We are moving to a rental because my wife doesn’t want to sell our place but we have outgrown it. Bogleheads advised against spending 1.3 mil in an inflated property market for a new house so we are not doing that. We will rent the house we own out, and use that rent to pay the rent on a house that’s worth about 1.4mil.

Anyway. This leads to the question. I am thinking of just paying the minimum on the loan and investing into a conservative fund instead of continuing to pay it down as fast as I can. Something 50-50 bond-stock or 60-40.

My current budgeting on about 300k is
Bout 90k tax
50-60 into the tax free retirement fund. (We only have 250k current due to earning less and being away 5 odd years)
90-100k left for investing.
Other 50k odd gets spent on life.

My reasons are-
1. Interest paid on a loan for a house I don’t live in is tax deductible in AU. Since I’m in the top tax bracket this will offset the tax I pay on the rental income.
2. Feel like with 850k of house I want to get more money into non real estate investment.

Anyone done a similar thing? Did it work for them?
Thinking of your mortgage as a negative bond can help.

Boglehead Allan Roth has written some great articles on the matter:

Consider Paying Down Your Mortgage

Tell Clients: Time to Pay Off the Mortgage

Also, Boglehead grabiner has many good posts on the subject: Re: Why Buy Bonds If You Have A Mortgage?

Re: Pay off homeloan or invest?

Posted: Sun Jan 21, 2018 11:41 am
by Hyperborea
The big downside in the US of doing this is the loss of the tax free capital gains exemption when you sell on your primary dwelling. Make it a rental long enough and when you do sell you will pay tax on the capital gains. From just a quick search it appears that there is something similar for Australia. I would take that into consideration. https://www.ato.gov.au/General/Capital- ... residence/

Re: Pay off homeloan or invest?

Posted: Sun Jan 21, 2018 2:40 pm
by Mues
Hyperborea wrote:
Sun Jan 21, 2018 11:41 am
The big downside in the US of doing this is the loss of the tax free capital gains exemption when you sell on your primary dwelling. Make it a rental long enough and when you do sell you will pay tax on the capital gains. From just a quick search it appears that there is something similar for Australia. I would take that into consideration. https://www.ato.gov.au/General/Capital- ... residence/
Already looked at this. I got it valued last week. I only have to pay capital gains on growth above the current amount. As the other gains where while it was my principle place of residence

Re: Pay off homeloan or invest?

Posted: Sun Jan 21, 2018 3:10 pm
by fortfun
Rowan Oak wrote:
Sun Jan 21, 2018 9:15 am
Mues wrote:
Sun Jan 21, 2018 2:29 am
Hi all,

Mid 30’s. 1 kid. 1 wife :p. Household income has gone up a lot recently and is near 300k. Live in Australia.

Currently we have 250k in non taxable retirement accounts and are maxed out for paying in.

We have a house that’s worth about 850k and only 200k left of debt.

We are moving to a rental because my wife doesn’t want to sell our place but we have outgrown it. Bogleheads advised against spending 1.3 mil in an inflated property market for a new house so we are not doing that. We will rent the house we own out, and use that rent to pay the rent on a house that’s worth about 1.4mil.

Anyway. This leads to the question. I am thinking of just paying the minimum on the loan and investing into a conservative fund instead of continuing to pay it down as fast as I can. Something 50-50 bond-stock or 60-40.

My current budgeting on about 300k is
Bout 90k tax
50-60 into the tax free retirement fund. (We only have 250k current due to earning less and being away 5 odd years)
90-100k left for investing.
Other 50k odd gets spent on life.

My reasons are-
1. Interest paid on a loan for a house I don’t live in is tax deductible in AU. Since I’m in the top tax bracket this will offset the tax I pay on the rental income.
2. Feel like with 850k of house I want to get more money into non real estate investment.

Anyone done a similar thing? Did it work for them?
Thinking of your mortgage as a negative bond can help.

Boglehead Allan Roth has written some great articles on the matter:

Consider Paying Down Your Mortgage

Tell Clients: Time to Pay Off the Mortgage

Also, Boglehead grabiner has many good posts on the subject: Re: Why Buy Bonds If You Have A Mortgage?
Thanks for sharing these links. Very helpful. I'm going to start paying down the mortgage...