Best mortgage strategy for FIRE: Pay down or use offset?

Hi Alex.

Using your offset will have the same effect as paying down the loan in terms of saving interest. But if you were hoping to reduce the monthly repayment that comes out each month, then later you’d need to actually put that money into the loan and refinance.

I’m assuming you’re on a fixed rate given you mentioned the 10k restriction. That means this hurdle is only temporary and when that fixed term finished you can pay down your loan much more if you desire.

There’s no ‘best’ strategy. To spend more on a PPOR delays your FIRE goal, which is perfectly fine, just understand the tradeoff. The method you use to get there is up to you.

If you don’t plan on upgrading for 10 years, then maybe you invest all your surplus cash in the meantime to speed up your wealth growth.

If you plan to upgrade in the next few years or so, maybe you just build your offset as much as possible and put everything towards your next home. Then when you move, your mortgage will be more manageable and you can then invest more aggressively for FIRE.

Hope that helps.

Hello!

Balancing living in the present while aiming for Financial Independence, Retire Early (FIRE) and managing a mortgage can indeed be a challenging but rewarding endeavor. Here are some strategies that might help you navigate your goals:

1. Maximizing the Use of an Offset Account: Since your mortgage allows for an additional $10,000 repayment annually, utilizing your offset account effectively can be a powerful tool. Money in an offset account reduces the balance on which interest is calculated, effectively making it equivalent to earning the mortgage interest rate tax-free on the funds in the account. This can be a very efficient way to reduce interest costs over the life of the loan without permanently parting with your liquidity.

2. Balancing Extra Repayments and Savings: Given your interest in eventually upgrading your Primary Place of Residence (PPoR) and reaching FIRE, it might be wise to balance making extra repayments and saving for future investments. Since you can only pay down an extra $10,000 per year, consider putting any additional savings beyond this into your offset account. This keeps your funds liquid (useful for emergencies and opportunities) while still reducing your interest payments.

3. Refinancing Considerations: Refinancing can be a strategic move to lower your interest rate or access better loan features. However, it’s important to consider the timing. Building up a significant amount in your offset account first may strengthen your position when negotiating a refinance, potentially leading to better terms or rates. Moreover, having a robust savings buffer can provide more flexibility and security as you aim to upgrade your home in the future.

4. Long-term Planning for Upgrading Your Home: As you think about upgrading your PPoR, continue to focus on building equity in your current home while also saving separately for this goal. The funds in your offs

   Show more.....