Should you pay off your mortgage debt?
With interest rates falling lower than ever before, you may be using the extra savings to pay off your mortgage debt while they can.
But is it the best time to try and clear debt, or should we be taking advantage of low rates to purchase more assets?
What is your strategy?
Head of Binvested, Nathan Birch, has a lot of debt.
Which is why he follows finance trends to the T.
He has been predicting that interest rates will turn negative for the last couple of years – and with the RBA recently bringing the cash rate down to 0.25%, he is excited to see what the future will hold.
“We’re in a position at the moment which has never been seen before,” he says.
“Debt is going to become free.”
How can we take advantage of this opportunity?
Now that repayments have dropped for most of us, Nathan says we have more options at our fingertips.
“You can use that extra savings to pay off debt, you can use it to buy another property – you can use it for whatever.”
But, if we really want to come out on top during this global financial depression, it’s important to knuckle down and come up with a strategy.
And, for many people, now may not be the best time to start closing their debt.
Now is not a good time to sell.
Nathan cautions against selling property during this time.
“People think they should sell off their property and pay down debt.”
“It’s not about selling your property – do not remove the debt, keep the debt for the moment, wait for it to go to zero, and then we’ll attach a strategy for you to be able to wipe that debt out.”
He says, with rates still likely to fall to zero or lower, property investors are likely to benefit from better cashflow.
He also says that all the stimulus being rolled out to keep the economy going will eventually cause the next property boom. It may be difficult to see this now, but once the coronavirus has been tackled, and rates are below zero, it is likely investors and homeowners will rush to buy property while debt costs them nothing to hold.
So, when should we start paying off our debt?
Instead of paying off our debt now, Nathan says we could benefit from taking on more.
“People are going to be running out thinking they’ve got to pay off their debt today – this is when you should collect debt,” he says.
With interest rates so low, it may be possible to expand your asset base and create an even better cashflow than what you could have achieved a couple of years ago.
When property prices start to ramp up again, those who have used this time to acquire more assets will be in a prime position to profit from the growth.
“You want to be leveraging yourself into a better position,” says Nathan.
“There will be a time to pay out your debt.”
He says, this will depend on your strategy and position, however, he thinks it is best to wait until rates have hit absolute bottom before attaching a strategy to pay it off.
“Everybody’s position is different. I want to work out strategies in order to help 2,000 people pay off their mortgage in the next decade,” says Nathan.
He says, there may come a time when interest rates skyrocket – but this won’t happen anytime soon. With the cash rate set to stay low for the coming years, he says it should be possible for plenty of people to become debt free over the next ten years if they have the right plan in place.
Remember, there is no one-size-fits-all solution. How you adapt to the current situation will be different to how your fellow investors might. Your end goals are different, your current positions are different. Your strategy should be aligned with what you are trying to achieve.
If you need help with adapting your strategy to better suit the new economic conditions we are currently seeing, Nathan is currently offering a free 15-minute phone consultation so you can get a bit of clarity on how best to move forward.