Mortgage Debt Vs Car Spending

LTenet on 11/01/2021 - 11:26

So, with all these forum topics with car purchases, mortgages, Covid, enjoying life, invest etc- I wanted to put forward a situation to see what readers would be prioritizing if they were hypothetically in the following scenario:

Combined income: $175k
Mortgage: $250k
Primary place of residence: $900k (thanks mainlanders for the property boom in Hobart :P)
Age: 35 and 30
Kids: NIL (maybe 1 in future?)

Im currently on the fence about purchasing a used performance car through a lease for around 60k (think 3 to 4 year old BMW M2/Audi RS3), eliminating the mortgage within 10 years, or pumping money into a share portfolio made up mainly ETFs.

Assumptions:
Due to the fields we are in, we have accepted that our Income has effectively reached maximum for us, and we are not keen to go through a career change in the future.
Not really keen to move, unless it is into a similarly priced place.
International travel (while has been great) is not a bi-annual requirement like every annoying influencer out there, so realistically one trip in the next 3 years could be ion the cards (Covid pending of course).

What would you work towards in this situation?

-$XXX in ETF's?
-$XXX additionally contributed to Super?
-$XXX smash the mortgage?
-$XXX purchase an investment property where hipsters will move to soon :P
-$XXX purchase a Golf GTI with a crackle tune??

Curious to hear your thoughts :)

(and no- i don't want a Camry/corolla- we already drive these cars!!!!)

Financial

Comments

  • pndl on 11/01/2021 - 11:29
    +1

    You have lots of equity.

    With interest rates so low, you can top up your home loan and buy your car at home loan interest rates.

    Rather than buy etf directly. Create a second home loan account and use that to buy etfs. That interest would be tax deductible. And income on that etf could pay down your home loan.

    • Ocker on 11/01/2021 - 13:40
      +1

      Good therory - unless of course there is another stock market crash and you drop a bucket on the value of the ETF's

      • pndl on 11/01/2021 - 13:52
        +2

        Yeah, totally, I think the idea is to not invest more than you would otherwise have invested in the ETFs using cash.

        Example OP wants to invest $50k in ETFs

        Scenario 1 - take $50k out of home loan offset to invest. Have to pay additional home loan interest, which is not deductible
        Scenario 2 - leave $50k in offset or pay down main home loan. Create second loan account with the house as security. Draw $50k from new loan account to buy ETFs. Interest is deductible.

        Where it gets dangerous is the temptation to invest a lot more, like few hundred thousand, just because you can borrow more.

        • Tenet on 13/01/2021 - 08:18

          Ahhh, the classic debt recycling strategy. I think we are at an all time high and you are correct that I wont be investing more than I can afford to lose into ETFs.

  • djones145 on 11/01/2021 - 11:34
    +1

    all depends on this!

    Kids: NIL (maybe 1 in future?)

    KIDS, expensive! will lead to changes like is ur house big enuff, is it int he right school zone, childcare, inmpacts to work arrangements, is the car big enuff, then general expenses etc

    sit down with aprtner and determine whether u want kids, that will change everything!

    • rompastompa on 11/01/2021 - 11:40
      +1

      Kids: NIL

      OP did mention that kids are Next In Line ;)

    • netjock on 11/01/2021 - 11:45

      KIDS, expensive! will lead to changes like is ur house big enuff, is it int he right school zone

      About schools. Worst case, refinance the house and put them into private school. By the time you sell and repurchase in the right zone for an extra $200k of now money that you have to pay the bank into the future.

  • johnno07 on 11/01/2021 - 11:34
    +3

    If I was you I'd be buying up as much of Tassie as possible.

  • netjock on 11/01/2021 - 11:42
    +1

    Im currently on the fence about purchasing a used performance car through a lease for around 60k (think 3 to 4 year old BMW M2/Audi RS3), eliminating the mortgage within 10 years

    Refinance your home loan (look for the $4k sign up bonus) and buy the car with the case. At 2% interest rates it is probably better than anything you get.

    or pumping money into a share portfolio made up mainly ETFs

    Plenty of people will come out and give you 2c worth. Just don't put all your eggs in the one basket.

  • spackbace on 11/01/2021 - 11:46
    +1

    Don't buy a 2-seater or 2-door sports car if kids are on the near-horizon…

  • bobbified on 11/01/2021 - 11:52
    +2

    It seems like you two have done plenty of saving etc already.

    I assume you're married or are defacto and since you don't have kids (yet)? I'd say that now is the time to get/do whatever you want and enjoy life. Because if you don't do it now, when else are you going to do it? Once you have kid(s), it might become a little more difficult to enjoy such things as a luxury sports car and holidays, etc.

    I lay in a hospital bed not too long ago for a couple of days and I really wasn't sure if I was going to be dying or going to be living. There were so many things in my mind I wish I did, but I distinctly remember thinking that "even if I had a few million in my account right now, I would not be any happier!".

    So when I got out, I did what I wanted to do (within reason, of course!). Having lots of money wasn't much of a priority anymore.

  • whooah1979 on 11/01/2021 - 11:58
    +1

    Im currently on the fence about purchasing a used performance car through a lease for around 60k

    Invest the $60k in asymmetrical capital growth assets that have the potential to 10x in the next 12 months. Yes, it does happen.

  • dstar012 on 11/01/2021 - 12:49
    +2

    Have children, they will bring you far more joy (in the long run) than a used German sports car.

    • modsec802 on 11/01/2021 - 14:29
      +6

      In the long run is the most important part. In the short term they will bring you years of pain, suffering and sleep deprivation

    • Tenet on 13/01/2021 - 08:29

      That is true. One thing that is also at the back of my head for children is that a substantial amount of your savings (when they are older) will need to be allocated to them in order to get a foothold in such a competitive future.

      It's the ideal time to enjoy the finer things now, however, it also makes sense to lock those otherwise "wasted" funds into a package for them later in life.

      It's a hard decision for anyone who tends to overthink!

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