Free-Holding the Home - Planning for Retirement?

We believe that the first priority when investing for retirement is to freehold the family home. Financially, planning for your retirement is an important issue and should be carefully approached by establishing your priorities in order to take every advantage of your precious discretionary dollar.

You have a choice with ever dollar you spend: -

• Do I Invest?
• Do I Reduce My Mortgage?

The answer is simple: -

If the investment can guarantee you an after tax return greater than the interest you are paying on your mortgage, then invest. If not, then pay your mortgage off.

Reducing a mortgage with additional funds produces a guaranteed rate of return equal to the interest you have saved by paying off your mortgage. Every dollar you use to reduce the home mortgage earns you an after-tax return on that investment of 7.5%. This return is equal to 11.19% if tax is 33% or 9.4% if tax is 21%.

For example: -

Two families each have a mortgage of $100,000 and $939 per month available for mortgage repayments and retirement investment. Family "A" is investing $200.00 per monthly in a superannuation scheme and at the same time repaying their mortgage at $739 per month. Family "B" decided that they would concentrate on freeholding the home by making mortgage repayments of $939 per month, then investing the $939 per month for retirement when their house was freehold. Both families are 35 years away from retirement.

# Assumed interest rate of 7.5% over the term of the mortgage.
*Assumed yields over time at 5%.

In summary, Family B has a freehold home after 14.5 years and has accumulated just under $50,000 more than Family A in the 35-year example.

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