Q: I have an apartment worth about $600,000 with a small mortgage and $100,000 in term deposits. Should I pay off my mortgage and buy an investment property, or stay where I am?
A: With interest rates tipped by many experts to stay at their current lows for at least the rest of the year[MC1] , I believe term deposits are not the best option if you are keen to continue building up your assets or get a strong return.
Term deposits usually run from one month to five years and have a fixed interest rate. At the moment, interest rates range from about 1.5 per cent to 4 per cent, depending on the amount and term length chosen. Canstar has a term deposit comparison tool on their website so you can check if your current term deposit is offering competitive rates.
While term deposit returns can be reasonable in this low rate climate and provide guaranteed return and security of your money, they also preclude you from potential capital growth offered by other investment avenues such as an investment property or shares.
The interest rate on your mortgage probably exceeds the term deposit return you are currently receiving, so it might be worth considering paying off your mortgage instead, though be careful of penalties if you break your term deposit early.
You might also have equity built up in your apartment, which you could use to purchase investments, like shares or property.
Regardless, based on the information you’ve given me you seem to be in a strong financial position.
With interest rates low and continued property price and rental return growth in many areas, now could be a good time to invest in property.
But before you do anything you need to get expert advice from a financial adviser, and I’d also recommend you speak to an MFAA accredited mortgage broker who can provide some information on your different options.
Do you have an investment property? What was the deciding factor that inspired you to take the investment plunge? Share your experience in the comments!
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