Question from Barry updated on 29th December 2017:
We are building a house and our existing freehold house is security in the mortgage. Once completed the mortgage will be $645,000 and we are planning to rent out the old house to help service the mortgage. However, would it be better to sell the house (estimated sale value of house approx $420,000), end up with a smaller mortgage and work at paying this off?
The reason I ask is that I'm wondering how long it would take to get the mortgage down to a point where selling the old house would clear the mortgage. I'm approaching 10 years to retirement age and don't really want a mortgage in my retirement years!
Our expert Kris Pedersen responded:
I would recommend getting advice from a good property accountant on how best to structure the ownership of your existing property if you were to retain it. From there you need to work out how the numbers stack up from an after tax cash flow point of view. You should then be able to run a budget on whether you can pay the mortgage off over the 10 years you have until retirement.
Make sure that you don't approach this from the irrational point of view that you cannot have any debt at all at retirement. This will cloud your view and make you think that you should sell now. You don't mention enough about the remainder of your position, but you should also take into consideration that if you spend the next 10 years wisely you will have a much better retirement than just having an unencumbered residence and the pension.
Kris Pedersen of Kris Pedersen Mortgages is a commentator on property and finance. His team sources top finance strategies. www.krispedersen.co.nz