I want financial freedom, so I'm paying off my mortgage quite quickly. I used the good energy loan to convert some of my mortgage to 1%, as I used savings to pay for upgrades to my house
Thanks Ed. Great to have a dedicated NZ channel. Like you say I've been watching alot of US based videos but they don't necessarily translate when you start getting into the detail. Well presented, clear and friendly.
The numbers used for investment returns don't take into account tax implications when investing, which may skew that 10% much closer to the guaranteed return of the interest rate on the home loan. There is also the option to build up the offset account rather than making extra repayments. Where by then the money in the offset account is "earning" the interest rate of the home loan by not having to pay the interest on the mortgage equivalent to the size of the offset account. Whilst that return is capped at the size of the mortgage the guaranteed return, with no tax liability and a growing nest egg in the offset account plus the additional benefit of less volatility of rate of return. My point being I'm not sure why tax is not considered when talking about investing
I'm from Australia and I know this is a New Zealand channel, but I expect most of what I say also applies to New Zealand. Firstly, obviously not everyone pays the same amount of tax. One person might pay 10-20% and another might be 40%, etc. so it doesn't make sense to apply a single number to reduce the returns. Secondly, more importantly, you generally don't pay tax on stock investments until you sell. I plan to sell when I'm retired and my income is much lower so the tax will be relatively small. When the growth of your investments has compounded to millions before you pay any tax, the amount of tax you pay compared to the total returns is negligible if you just withdraw (sell) a little every year. Finally, I don't know about in New Zealand but in Australia superannuation earnings is tax free once you retire.
What tax on investing? In NZ you don't pay tax on stock investments when you sell. Only on dividends or fixed interest securities. We don't have a capital gains tax (CGT) that Aussie has.
Lucky you! But yeah, even in Australia the tax is small if you sell gradually once retired. Everyone is on a different tax threshold or circumstance, that's why it's meaningless to include tax in returns.
Yeah so you completely missed the part of the investment property comparison where you somehow pay the mortgage. Or pay the deposit but lets assume you use existing equity and an income to sustain the Banks' lending ratios. A $600,000 property and mortgage maybe see $550-600pw rent (Wellington) plus the costs of rates, insurance, management and repairs. So your costs per week including a 30yr mortgage at 6% would be around $1050pw. So rent + your extra $250pw top-up leaves you $300-350pw short. The only way the numbers work is to have 1/3rd deposit or $200K. Now do the same comparisons taking into account the opportunity cost of the $200K deposit tied up in the rental for the 15 years.
How do you get around the Bank saying that they will only accept payments over 10K per time to pay down the mortgage faster ? But then they've got clauses to restrict you by paying it off before a set date ?
At the start of this year, I did the calculations on whether it was better for me to increase my mortgage payments or allocate the extra money towards investments. I decided to increase mortgage payments (to just under 30% of my gross earnings). I also have an emergency fund set aside, which factored into my decision making. I aim to be mortgage free in about 2.5 years time.
Early payoff penalties, floating rates, closing costs and taxes all impact the decision. According to my analysis, if you've fixed 30 year mortgage at 6.5%, and if mutual funds or even savings account give you 4.5% BEFORE TAX, you will still save more by investing!
At 40 years old, I have gone back to studying and so putting any money towards saving and investing for probably the next few years is going to be a challenge. Am I right in thinking any money I can use to pay off my mortage will have an immidiate impact on my monthly repayments and therefore ease cost of living pressures now?
@@DiscoFang If real return on mortgage is less than 3.2%, I would prefer to invest. It's based on long-term real return on MSCI ACWI Index and 28% PIR.
Please can anyone advice on which banks agree to accept extra payments towards the principal in nz? Our loan is with sbs and they have agreed to only $20 extra on our $580 weekly payment.
Have part of your loan as a revolving credit then pay down your "main" mortgage every time it comes up. Can also keep some in reserve in your revolving credit for some security, if you feel the need.
Revolving credit account floating rates are not necessarily the best way as you're paying the higher floating rate. It depends if you think you'll need to redraw, how good your budgeting is and how much surplus you have each week/month. If you look at your mortgage terms and conditions document it will likely say any lump sum payment is allowed when on floating but not on fixed rates. It will also likely say that you automatically revert to to floating rate if you don't refix before your current fixed interest term is up. That is one way to do it: when your refix date is rolling around, delay it a week and while you're on fixed rate make a lump sum deposit of the weekly surpluses you've set aside in another acct. You could ask your bank if you can simply make a lump sum payment at refix time. They can allow for it then for their planning.
@@DiscoFang Hey Disco, Yes the rate is normally higher on a floating loan however you're only charged interest on what's outstanding. If you had a floating loan of 10k and you paid that off over 1 year (consistently), the floating loan was at 8% then your effective rate is 4%, as you're only paying for what's outstanding at any given time. After the year you can make a lump sum on the other fixed portion of the loan without penalty and then rinse and repeat. The alternative is making a savings account and using that instead, saving then making a lump sum on the mortgage when possible. But I do agree, it depends on how you manage your money and what the interest rates are like at the time (borrowing vs saving rates).
How about tax on investment property? 1. Rental income tax 2. Brightine Test since the investment property won’t be your ‘main home’ whether you keep it 2 years or more.
1. The video is only talking about out capital growth. Rental income will be on top of that and yes maybe taxed if positively geared. 2. He’s talking about holding on to the property longer than the bright line. So when you sell you won’t be taxed.
No surprise the person with vested interest in property creates a misleading video promoting property investments! 1. Didn't consider tax on investment returns taking the 10% theoretical return close to the 6% guaranteed return of paying off mortgage. 2. On investment properly, didn't consider the mortgage repayment/topup or things like rates on investment property which would eat into your 5% capital gains. Here is the right answer, use an offset account and pay down your mortgage. That way you have access to liquid assets and guaranteed tax free savings.
1. What investment tax? This is NZ. 2. Agree he didn't even factor the mortgage or other costs. Current market supports approx (approx!!) 1/3rd deposit to be cash flow neutral. 3. Offset mortgage rates are generally floating rates which are generally 2% over fixed rates. Sometimes it's even 4.5% over.
We are a 40 y/o couple, cbf keeping our chch rental. It is costing $17,000 per year in top ups. So, sell it,??? Take profit and wipe Home mortgage. Use what we would have spent on loan/s on investing in Index Funds etc. many ways to skin a cat.
This is the exact scenario I’m grappling with atm. A Dave Ramsey vs Robert Kiyosaki perspective. I have organised a meeting with your partner Andy to hopefully gain some insight to what would be best for our individual situation 👍 thanks for the great vid
I want financial freedom, so I'm paying off my mortgage quite quickly. I used the good energy loan to convert some of my mortgage to 1%, as I used savings to pay for upgrades to my house
Yeah the good energy loans are a great thing.
Thanks Ed. Great to have a dedicated NZ channel. Like you say I've been watching alot of US based videos but they don't necessarily translate when you start getting into the detail. Well presented, clear and friendly.
Subscribed. The way you explain this makes it easy to understand, no mumbo jumbo words.
Not sure what investment returns 10%, and this doesn’t factor in tax. So 10% is 6-7% in real terms depending on your tax bracket
Look up SP500 just for one example
Best to stick with the guidelines of 4.5% returns for growth funds after tax and fees, and 5.5% for aggressive and 3.5% for balanced, etc.
S&P 500 averages around 10%
The numbers used for investment returns don't take into account tax implications when investing, which may skew that 10% much closer to the guaranteed return of the interest rate on the home loan. There is also the option to build up the offset account rather than making extra repayments. Where by then the money in the offset account is "earning" the interest rate of the home loan by not having to pay the interest on the mortgage equivalent to the size of the offset account. Whilst that return is capped at the size of the mortgage the guaranteed return, with no tax liability and a growing nest egg in the offset account plus the additional benefit of less volatility of rate of return.
My point being I'm not sure why tax is not considered when talking about investing
I'm from Australia and I know this is a New Zealand channel, but I expect most of what I say also applies to New Zealand.
Firstly, obviously not everyone pays the same amount of tax. One person might pay 10-20% and another might be 40%, etc. so it doesn't make sense to apply a single number to reduce the returns.
Secondly, more importantly, you generally don't pay tax on stock investments until you sell. I plan to sell when I'm retired and my income is much lower so the tax will be relatively small.
When the growth of your investments has compounded to millions before you pay any tax, the amount of tax you pay compared to the total returns is negligible if you just withdraw (sell) a little every year.
Finally, I don't know about in New Zealand but in Australia superannuation earnings is tax free once you retire.
@@slightfimulator4888you do pay tax in Australia on your dividends whilst you’re working.
What tax on investing? In NZ you don't pay tax on stock investments when you sell. Only on dividends or fixed interest securities. We don't have a capital gains tax (CGT) that Aussie has.
Lucky you! But yeah, even in Australia the tax is small if you sell gradually once retired. Everyone is on a different tax threshold or circumstance, that's why it's meaningless to include tax in returns.
Yeah so you completely missed the part of the investment property comparison where you somehow pay the mortgage. Or pay the deposit but lets assume you use existing equity and an income to sustain the Banks' lending ratios. A $600,000 property and mortgage maybe see $550-600pw rent (Wellington) plus the costs of rates, insurance, management and repairs. So your costs per week including a 30yr mortgage at 6% would be around $1050pw. So rent + your extra $250pw top-up leaves you $300-350pw short.
The only way the numbers work is to have 1/3rd deposit or $200K. Now do the same comparisons taking into account the opportunity cost of the $200K deposit tied up in the rental for the 15 years.
Using your house aa leverage for equity then investing in multiple property generates is the best of both worlds.
The 10% return from a growth fund should be adjusted for tax -- right? Enjoyed the video, cheers!
What tax? The fund generally pays any taxes and the annual return % includes that.
How do you get around the Bank saying that they will only accept payments over 10K per time to pay down the mortgage faster ? But then they've got clauses to restrict you by paying it off before a set date ?
At the start of this year, I did the calculations on whether it was better for me to increase my mortgage payments or allocate the extra money towards investments. I decided to increase mortgage payments (to just under 30% of my gross earnings). I also have an emergency fund set aside, which factored into my decision making. I aim to be mortgage free in about 2.5 years time.
Early payoff penalties, floating rates, closing costs and taxes all impact the decision. According to my analysis, if you've fixed 30 year mortgage at 6.5%, and if mutual funds or even savings account give you 4.5% BEFORE TAX, you will still save more by investing!
If I had an offset account for my mortgage, would it matter if I payed that into my mortgage weekly compared to waiting monthly?
do these numbers include the relevant taxes like FIF?
FIF is only stocks outside of nz
@@brentleitch3472 If you are receiving 10% pa returns on shares you are most definitely investing in overseas shares..
@@brentleitch3472 Yeah good point, so if you're avoiding FIF tax then good luck getting 10% YoY returns in the NZ stock market
At 40 years old, I have gone back to studying and so putting any money towards saving and investing for probably the next few years is going to be a challenge. Am I right in thinking any money I can use to pay off my mortage will have an immidiate impact on my monthly repayments and therefore ease cost of living pressures now?
So invest in shares so you have liquidity right?
But couldn't you just make the extra payments, and then use re-draw if you needed the cash ?
My rule of thumb is that if the real return is less than 3.2%, invest; otherwise, pay your mortgage.
You mean more than 3.2%?
How did you get to this rule of thumb
@@DiscoFang If real return on mortgage is less than 3.2%, I would prefer to invest.
It's based on long-term real return on MSCI ACWI Index and 28% PIR.
Please can anyone advice on which banks agree to accept extra payments towards the principal in nz? Our loan is with sbs and they have agreed to only $20 extra on our $580 weekly payment.
Have part of your loan as a revolving credit then pay down your "main" mortgage every time it comes up.
Can also keep some in reserve in your revolving credit for some security, if you feel the need.
BNZ
Revolving credit account floating rates are not necessarily the best way as you're paying the higher floating rate. It depends if you think you'll need to redraw, how good your budgeting is and how much surplus you have each week/month. If you look at your mortgage terms and conditions document it will likely say any lump sum payment is allowed when on floating but not on fixed rates. It will also likely say that you automatically revert to to floating rate if you don't refix before your current fixed interest term is up. That is one way to do it: when your refix date is rolling around, delay it a week and while you're on fixed rate make a lump sum deposit of the weekly surpluses you've set aside in another acct.
You could ask your bank if you can simply make a lump sum payment at refix time. They can allow for it then for their planning.
@@DiscoFang Hey Disco,
Yes the rate is normally higher on a floating loan however you're only charged interest on what's outstanding.
If you had a floating loan of 10k and you paid that off over 1 year (consistently), the floating loan was at 8% then your effective rate is 4%, as you're only paying for what's outstanding at any given time.
After the year you can make a lump sum on the other fixed portion of the loan without penalty and then rinse and repeat.
The alternative is making a savings account and using that instead, saving then making a lump sum on the mortgage when possible.
But I do agree, it depends on how you manage your money and what the interest rates are like at the time (borrowing vs saving rates).
@@TisNotReallyMeThank you!
How about tax on investment property?
1. Rental income tax
2. Brightine Test since the investment property won’t be your ‘main home’ whether you keep it 2 years or more.
1. The video is only talking about out capital growth. Rental income will be on top of that and yes maybe taxed if positively geared.
2. He’s talking about holding on to the property longer than the bright line. So when you sell you won’t be taxed.
No surprise the person with vested interest in property creates a misleading video promoting property investments!
1. Didn't consider tax on investment returns taking the 10% theoretical return close to the 6% guaranteed return of paying off mortgage.
2. On investment properly, didn't consider the mortgage repayment/topup or things like rates on investment property which would eat into your 5% capital gains.
Here is the right answer, use an offset account and pay down your mortgage. That way you have access to liquid assets and guaranteed tax free savings.
1. What investment tax? This is NZ.
2. Agree he didn't even factor the mortgage or other costs. Current market supports approx (approx!!) 1/3rd deposit to be cash flow neutral.
3. Offset mortgage rates are generally floating rates which are generally 2% over fixed rates. Sometimes it's even 4.5% over.
@@DiscoFang
1. PIE or FIF
3. You only pay interest if not fully offset. Keep it full and build up savings and increase the offset portion overtime.
@@DiscoFangour offset is 7.4% but it’s entirely offset. So no interest paid, just P.
@@michaelhealy3638So no real difference from revolving credit facility. Just extra marketing to colour it as a clever tool.
So the real question is, why bother having a floating interest rate portion of your house loan? When you could just invest it in a managed fund?
Liquidity/ access to funds.
Hello there I've just turned 50 do you think investing would still be an option for me
Definitely
Yes
Yes put money in hard assets spy, gold, property don't get me started on Bitcoin..
Yes definitely. The best time to invest was yesterday. The next best time is today.
I near 60 and thinking on other options.
A1 information 👍 it helps me understand options.
Please do more
Throughly enjoyed this one, thank you.
yeah i like Milton Friedman Free to Choose Full Documentary from the 70's, this was still cool for what it was
Favorite video so far! Great stuff
The puzzle for me is how to get 10% return invest. I know nothing about invest except bank fixed term invest, far less than 10%.
Bout time I found new Zealand info
Great video
We are a 40 y/o couple, cbf keeping our chch rental. It is costing $17,000 per year in top ups. So, sell it,??? Take profit and wipe Home mortgage. Use what we would have spent on loan/s on investing in Index Funds etc. many ways to skin a cat.
Are you able to offer any custom advise at no charge? Or are all consulting sessions at charge? Great video
Amazing bro
WTF? what about Tax and inflation added into the equation?
This is the exact scenario I’m grappling with atm. A Dave Ramsey vs Robert Kiyosaki perspective. I have organised a meeting with your partner Andy to hopefully gain some insight to what would be best for our individual situation 👍 thanks for the great vid
Paying off your mortgage is guaranteed.
Investing isn't...
House prices aren’t guaranteed to grow
Nothing’s guaranteed
@@frsr416 historical data suggest otherwise!