What is the priority: repaying your home loan or investing

Many people can be very focused on repaying their home loan in full before they begin investing.

They are so averse to debt that they cannot envisage doing anything else until their home loan is gone.

However, often this isn’t the best approach to take.

At some point, investing is more important than debt reduction.

So how do you know when you have got to the point?

What factors should you consider?


A financial buffer will allow you to continue paying for living expenses and financial commitments if your financial circumstances change e.g., loss of income.

This buffer can consist of access to redraw (i.e., additional repayments into a loan that can be withdrawn in the future, if needed) and/or cash in offset accounts.

How much buffer you need depends on how secure and predictable your income is, and the extent of your financial commitments.

If your income is unpredictable, I would usually like clients to have a buffer equal to one to two years of expenses and commitments.

If you have substantial commitments e.g., high gearing to asset and/or high gearing to income ratios, then it is prudent to hold higher buffers in this situation i.e., one to two years.

Otherwise, a buffer equal to 6 to 12 months of expenses and commitments should be enough.

Typically, your most important financial goal is to accumulate sufficient financial buffers.

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Jason Gwerder
Wednesday, 18 October 2023

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