The Ultimate Low Rate Credit Card – How To Maintain Liquidity In Your Property

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4 Responses

  1. Have just found your blog and really enjoying it so far. We are doing a similar thing with our home loan, basically filling the offset to match the loan amount. No interest but we will still have access to the funds if we need them. Win win!

    • tom says:

      Glad you enjoyed it 🙂 The ability to pay off a loan and then redraw the money (one way or another) is a fantastic way to minimise loan interest while not having to maintain a seperate “emergency fund”. I think knowing I could pull the excess out again motivated me to see how much I could put in there – nothing like a challenge to motivate me!

  2. Brad Folster says:

    Hi Tom,

    First I’d like to congratulate you for breaking the 1M mark that’s a huge milestone for most. Second I’d like to ask what made you decide to pay your house off first rather than investing in stocks? with record low mortgage rates of 4% and stock markets averaging 7% seems like a no brainer to go with stocks no?? I’m looking forward to hearing your opinion on this topic!

    • tom says:

      Hi Brad, and thanks – it was a nice surprise when I realised we had broken the $1m. Your question is a good one. There are a couple of different bits that played into it.

      Firstly, interest rates were not at 4% when we got the loan. I think they were high 7’s and we did “what if” planning for 10% (with some scenarios breaking us at 13%). It wasn’t until just before 2014 that they hit these very low levels. So for the majority of the mortgage we were paying (give or take) 6-7%, with average returns around 7+% on the stock market. With the market rise in 2012 we should have dumped everything in there, but again we didn’t know that at the time. The share market is also much more volatile, so even with a larger return, when you factor in tax on profits it didn’t seem worth it. (As a side note a couple of my friends who have not paid off their mortgage have done exactly that, pulled a bunch of money out of their loan to invest in the market).

      A second reason is that both my partner and I were badly bitten by the GFC by the sharemarket. This left a bad taste in my mouth and we have been more hesitant in how much of our money is in the market. Thankfully we did put a chunk of money into the market just in time for the 2012 rise (and that felt good).

      A third reason is that we don’t live our lives in Excel. So while it may have made sense (and looking back it did) to move the money into the market, we decided that we wanted to pay off the house. I am happy to have debt against income producing assets (margin loans, investment properties etc), but don’t like the idea of loans against non-income producing assets as much, and our house doesn’t produce an income. I know #3 is not logical, but with the house paid off I don’t have to worry about “what if” events. If the interest rate went up to 17% and the sharemarket way down, and we both lost our jobs, we could easily survive for many months if not years. So in some ways I think it was a case of “lock it in Eddy”. We now have a house that can’t be taken away from us, and are more free to invest our money (sometimes with much more risk).

      I hope that answers the question. In hindsight, stocks would have been better. In the current climate I think stocks probably are better. However by the time we thought the switch from loan to market was calling, we were at a position where we had the goal in sight and wanted to finish more than anything.

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