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Sometimes not paying back your home loan is a smart move

October 08, 20201 min read

OPINION: In the current environment of historically low interest rates, it’s possible to borrow a million dollars and yet only be repaying around $570 per week back.

As insane as this is, you need to ask is that healthy to your investing and to your portfolio?

The only way to get repayments that low is if you choose to only pay the interest on the loan rather than the traditional “principal and interest”.

This means that after two or three years of paying your mortgage you are still going to owe the full principal amount of $1,000,000 and you haven’t at all chipped away at the lending.

READ MORE:

  • Online valuations, valuers and real estate agent appraisals

  • The only good relationship with a bank is a short one

  • The interest-only mortgage catch

In essence all you have done is kick the can down the road.

Most people will tell you, and quite rightly, that this is a dangerous way to leverage.

You’re paying the absolute minimum amount the banks will allow and making zero headway into getting freehold which is the aim of many Kiwis, so why would you do it?

Consider it this way, If you want to set up your retirement nicely, most Kiwis would like to have a freehold family home in a nice location and a couple of bulletproof rentals that tick over with low maintenance and are rented out all the time with a very low mortgage.

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