Adventure Money has put together a great article comparing the differing advice of two financial gurus. It is a great idea for a blog series.
I started out trying to put all my savings into paying off my mortgage. It worked well initially as it gave me a great deal of satisfaction seeing my loan go down. Later I realized that I wasn’t increasing my overall wealth, especially as housing prices started to level off.
I know when I first got my mortgage, I wasn’t earning very much. The repayments were more than the rent I was previously paying. Gradually over time, my salary increased and I was putting my savings into paying off the principle.
I later moved to Japan and rented the property out. It was a great feeling having someone else pay off my loan. I eventually realized I had all of this equity just sitting there which I wasn’t getting much return on. I was able to refinance to then buy further properties.
I haven’t had any recent valuations, but I know I could easily buy more property if I wanted, just by recycling the equity. As long as property values continue to increase, which they generally do in Australia and New Zealand, it is probably one of the easiest ways to accumulate wealth.
One word of warning though, never refinance your loan to buy a non-appreciative asset like a car, holiday or house renovation. I don’t think it is even a good idea to restructure your debt (credit cards, personal loans)using your mortgage.
Here is one way not to manage your financial affairs.
Disclaimer: This is just my opinion, seek professional advice before making any financial decisions.