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Should I sell my shares to pay my home loan?

I currently own some shares with no debt, but still owe money on our home loan. I paid approximately $8000 for the shares, which are now worth $42,000.The capital gain would be capital gains taxable at 50 per cent of the profit and the marginal tax rate payable would be 30 cents in the dollar. My question is, should I sell the shares and make a lump sum payment on my home loan to get the interest savings, or leave the shares and let them grow?

It seems to me that I could save significant money on interest off of my home loan, which is not tax deductible, and I could then use my equity in my home to re-buy the shares (or similar) if I thought I was still going to get growth and dividends in those shares. In effect, I would be switching from debt that is not tax deductible to debt that is tax deductible. What should I do? Am I missing anything?

You basically answered your own question. You’re not saying which shares you’re holding so it’s hard to comment on whether they will grow. Maybe they’re already at their peak and you should sell them to reduce your non-tax deductible debt and buy something else using tax deductible debt.

Of course, no one can give you precise advice without knowing your exact circumstances, but your thinking is sound, especially if your shares head south.

In many ways, this is the value of financial advice. A good adviser can run software to show whether you’re better off paying off the home loan or punting on your shares. However, the adviser will have to make some assumptions.

Seeing what alternative strategies will reap is one of the big pluses of financial planning, as it helps you make these decisions. Think about getting professional advice.

For advice you can trust book a complimentary first appointment with Switzer Financial Services today.

Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

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Published on: Thursday, March 31, 2011

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