A conversation I’ll sometimes have with people with the end of their mortgage in sight is “once the mortgage is paid off we want to get an investment property”. I often question the need to wait until that point in time. The main reason for this is with property we typically have an appreciating asset. This works in two ways: firstly, the longer you have the house the greater it should be worth. Secondly, you can expect to pay more in the future for the same house.

An example of this would be someone with 7 years remaining on their mortgage and looking at purchasing now versus when they are freehold in 7 years time.  Over the last 10 years capital growth on property has been around 7%, so I’ll use 7% annual growth in property price for this example:

So the comparison is between purchasing now versus purchasing in 7 years time. As income tends to not increase as fast as capital gains I’ve factored in only being able to afford a $550,000 property in seven years. At this time the $450,000 property with 7% capital growth should be worth $722,000. A second comparison point, 10 years after that, we can see the property values are at $1.421 million and $1.081 million, a $340,000 difference in value.

All things being equal, you are typically better off purchasing property now rather than waiting for the future.

The information contained in this article is of a general nature and should not be taken as advice. It reflects the opinions of the writer only and does not necessarily reflect the opinions of New Zealand Home Loans.