Obviously, you don’t feel like that right now. That monthly payment for “as long as you’ll live” feels interminable. And you’re hearing lots of news about inflation and rising interest rates. Then there’s all those other expenses that chew the rest of your monthly income.
But let’s look at things a little different and see some light at the end of the tunnel.
- Your mortgage bond gives you your primary place of residence. It pays for “home”. Your home is growing in value, slowly but surely. So, at some point in time, when your salary has risen and your bond has decreased you will have Equity in your house. That is a turning point in your wealth creation. Just by the way, I once said that your home is most peoples’ biggest asset and I was corrected. Your pension, for most people, is their biggest asset so look after it.
- When you have the spare cash monthly, pay extra on your bond. If I told you just a 10% increase in payment would save you 5 years [54 months to be precise], in payments. On a R1m bond over 20 years that equals R341662 in saving. Obviously, that gets better over a 30 year period and with more than 10% incremental payment. Can’t do it now? Then set the financial goal to force a saving of whatever you can afford.
- Remember, whatever you save earns tax free returns. The reason is simply that you save interest instead of paying interest and the bank earns less while you have a saving over the period.
- Obviously, there comes a point when your bond may be paid off. That’s a huge saving in monthly cashflow. Aim for it, it holds a hidden gem.
- At some stage, your equity or your paid off bond releases cashflow for an investment property. That’s an exciting prospect.
We’ll talk more about property investment in this blog, but aim in your portfolio to have a rented property or two when you retire. The great thing about it is that it is paid by somebody else. Of course, there are nightmare stories about tenants but there are many more about great returns from a tangible asset. What is most interesting about a rented property is that the mortgage bond, serving as an access facility, becomes your overdraft if you want it to be. Interest is tax deductible and the facility can be used for all sorts of luxury and wealth generating activities. For instance but not recommended, you can go overseas and repay the bond. Better still, you can buy a business or invest in other assets or another property by simply using the paid off rental property. It also helps that if a business doesn’t succeed, you have not risked your home in the process.
Property may not always be the best return in your portfolio. Many will also say that a property fund is the easiest way to invest in property – this blog does not disagree. But, for the sheer investment enjoyment of property, a buy-to-let investment is good to own and use.