Which Loan Should I Pay Off First Investment Property FAQs | Property Investment in Melbourne

October 12th, 2023

With both a mortgage and investment property loan, a common question is which debt to prioritize paying off first. The answer depends on your financial situation and portfolio goals. In this guide from Empire 8 Property, we’ll break down the pros and cons of different pay down approaches to inform strategic debt reduction.

Why Pay Off Your Home Loan First?

For most investors just starting out, attacking your residential mortgage aggressively makes smart financial sense for several key reasons:

You Can’t Claim Tax Deductions on It

Unlike your home mortgage, investment property loan interest and expenses can be claimed as tax deductions. Since you get no tax relief on your residential loan, it makes sense to concentrate on paying down that non-deductible debt first. Prioritizing the mortgage without write-offs saves you more.

It Carries Higher Interest Rates

Since investment loans often have lower interest rates than mortgages, paying off your mortgage will result in greater interest savings.

It Builds Accessible Equity

Paying down your mortgage builds equity you can more readily tap with a line of credit to fund future investments.

Don’t Neglect Your Investment Loan Completely

Paying extra on your home loan doesn’t mean ignoring investment debt entirely. You should still make the minimum repayments on investment debt while funneling surplus cash to your mortgage.

Key reasons:

  • It keeps your investment loan in good standing
  • Shows lenders you can service multiple debts responsibly
  • Allows claiming ongoing tax deductions

Analyze Your Specific Situation

While focusing on your home loan first often makes sense, always discuss your particular scenario with a financial advisor. Factors like timeline to retirement, property market conditions, and portfolio diversity may impact the optimal debt reduction methods for your situation.

At Empire 8 Property, our experts take a personalized approach to help you pay down debt in ways aligned with your investing aspirations. Contact us today to craft a strategic plan.

Take Control of Your Financial Future

Manage debt wisely by tackling your home loan first while maintaining investment payments. This balanced approach sets you up for sustainable portfolio growth. To discuss debt management strategies tailored to you, contact Empire 8 Property at 0433 213 993 or click here to request a consultation. Let’s build wealth together!