Should you pay off your mortgage loans or invest your money for your retirement? This is a question many often grapple with. Strict financial prudence advises that you should not carry any debt and your personal balance sheet should have minimal liabilities. However, no debt is not necessarily the best situation as you may not be using your available leverage effectively.
So, which should you do the next time you have some available funds? Read below for some suggestions.
Create Emergency Funds
The first thing you should do, if you don’t already have one, is to create an emergency fund. Start with a level that is comfortable for you and you can start small. Just ensure that you continue to keep it growing every month. If you already have one, top it up because you never know when you might needs funds for a rainy day.
Take Advantage of Cheap Debt
The falling interest rates worldwide and the recent downward revision of the Malaysian overnight policy rate to 2% by Bank Negara (source) will likely mean another drop in the Base Lending Rate and cheaper debt. With cheaper debt, interest payments cost less and you might want to leverage on it by investing in property. Otherwise, pay off part of your mortgage but take advantage of this situation to also invest your money instead in higher yielding investments.
Identify High Yield Investments
There are not many good investments at the moment in the current state of economy. However, there are many potential gold nuggets lying around if you can discern them. Undervalued properties or equity are a good buy as they will definitely earn you returns many times over when the market recovers in the next few years.
So in summary, should you pay off your housing loan or invest? Ultimately, it depends on your comfort levels. Those who are uncomfortable with holding debt should pay it off fast, regardless of the investment opportunities out there. However, depending on your age and number of working years, now could be a good time to top up your emergency funds, manage your debt with the cheaper debt available and still ensure you have some cash to build your retirement funds with.