Paying off your mortgage as soon as possible can give you peace of mind and the distinct advantage of being financially free. However, questions may arise such as: when you’re working to pay down your mortgage, when is the best time to invest? Should you pay off your home and then invest? Or which strategy has the best outcome: investing as soon as possible, or paying off your home swiftly?

Your Investment Property editor Sarah Megginson weighs in with a blended approach to get the most out of your money with Drew Evans, director of Caifu Property. Their interview sheds light on many of the common trends of individuals looking to invest in new properties.

Making your money work

For a lot of clients, the mentality around debt typically involves resolving debt, before taking on new investments ventures. In addition to this mindset, many people typically have a plan in place that results in them picking between owning their own home or making investments. It is crucial to note that you can actually do both at the same time – and get a better financial result, in a timely manner.

In this video, Drew and Sarah explore the idea that homeownership and investment become possible by effectively using your money, which means manoeuvring into a position where your money is working hard for you and not the other way around – whilst also being careful not to overextend yourself in a financial and lifestyle capacity.

Common mistakes many people make is borrowing at maximum capacity. They go to the bank and obtain a loan that they may be able to afford from a bank’s perspective, but that might not necessarily be realistic for them to maintain. With such a massive debt, they could be one massive emergency repair away from financial hardship.

Evaluating your finances

Financial capacity can be broken down into borrowing capacity and buying power. Borrowing capacity refers to individuals household income versus individuals household liabilities. This can range anywhere from personalised credit lines, to mortgages to children.

Meanwhile, borrowing power refers to how much cash individuals have for deposit and access to equity whether personalised or others.

Determining your actual financial capacity enables individuals to manage debt better and evaluate future steps and plans, minimising the risk of falling into more debt with no clear purpose. When dealing with debt, it all comes to mentality (psychology) and attitude towards handling and taking on more debt.

It’s naive to assume that investing is not a risky business, however planning for the worst and hoping for the best helps to minimise some of the risk. Investors mustn’t overextend themselves in financial and lifestyle capacity, which means: don’t borrow more money than you can afford, make sure that cash flow commitments are adequately taken care of in relation to investment outgoings, and build and develop investment buffers to ensure measures are in place to protect yourself.