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DO YOU VIEW your mortgages as liabilities or assets? The way you look at it can actually determine your financial success.
People often think that debt is bad and you should repay your loan as soon as possible. However, the truth is, some debt is good if used to own appreciating assets.
A mortgage can be an asset, if it works on your equity and income.
Without borrowing, you can just invest your cash flow surplus, which may be a less effective strategy. Instead, you can use your cash flow to service a loan and invest in a property or share market.
You won’t have to wait for decades before you can invest substantially, because the difference in today’s dollars in 30 years time could add up to over $1.3 million, or 43% more wealth. This is the law of compound capital growth.
Begin the process now
Do not delay, because a property today costs about $1.2 million; but the cost of delay can amount to around $100,000 a year. Have a reasonable amount of equity in a property and some surplus cash to service your loans. It may even be better to pay a slightly higher interest rate, so you can borrow and invest than put your investing opportunities in a bank account.
What should you look for?
You may be able to find a lender with a low interest rate; but its product and borrowing capacity are likely basic or service may be inconsistent. When looking for a lender, consider and balance out the price, service and product features. The lowest rate product may not always be the best and even cost you more in the long run.
It all depends on what stage you are at
If you are still accumulating investment assets, you should maximise your borrowing capacity. Remember that the ability to invest now may offset the small difference in interest rates in the future.
For those who already have enough assets, their most important factor could be the price. Make sure the bank will be there for you in time for your retirement.
If you are a retiree, you should have a low level of debt and no non-deductible debts. If your mortgage is a liability and your assets are not working hard for you, you should minimise its cost and find the lowest cost lender.
Bottom Line: Banks aim to minimise their risk and maximise their profit so understand the factors which drive them to approve or decline a loan. This way, you can play the investment game to your advantage.
Disclaimer: This article contains general information; before you make any financial or investment decision you should seek professional advice to take into account your individual objectives, financial situation and individual needs.
