Most of us are constantly looking to find an investment that will all but guarantee us superb reruns and yet the product that can deliver that can deliver them is one we already own. 

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If you have a home loan, one of the best returns you can possibly get will be delivered by accelerating your repayments. Few financial advisers will tell you this as their role is to “sell” you investments, not to show you how to get the best returns possible. 

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Here’s an example and we’ll take a look at an individual who has a home loan of €500,000, being repaid over 20 years, at an interest rate of 4% and set to repay €3,030 per month or €727,000 over the remaining term. The same individual has €1,500 per month surplus income that they wish to invest to create wealth. 

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By investing the €1,500 per month into the mortgage, the home loan will repay in 11.5 years and for a total cost of €207,000 the borrower will save themselves €336,600 (8.5 extra years of €3,030 per month). That’s equivalent to an annual return of 7.84% on the additional payments, and as the profits are not “profits” from a taxation perspective, there is no tax to pay.

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The return outlined is all but guaranteed (although savings may vary somewhat if the underlying interest rate varies) and there is certainly no equivalent investment that can deliver such returns without taking substantially more risk. 

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The old saying of “a bird in the hand is worth two in the bush” jumps to mind. 

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We are certainly not suggesting that this type of planning will work for all, for example, those with fixed interest rates may not be able to accelerate without penalty and penalties could undermine profitability. However, when you consider that to match the benefits in our example, paying capital gains tax of 33% on final profits, our sample individual would have to achieve an annual return of over 10% per annum (not achievable without very considerable risk), you can clearly see that “investing in your debt” is worthy of consideration.