ASK PAUL
Q
Iam42andhavejust
bought my first house. It
cost $543,000, for which I
fixed $434,000 and my parents went
guarantor for a variable $93,000
of it. I have $47,000 in an offset
account. Do I put the $47,000 into
the $93,000 to get that paid down or
do I keep it in the offset account? My
priority is to pay off the guarantee
loan in five years. I salary sacrifice
the smaller loan. I am keen to look
at investing once I have paid out
the smaller loan.New homeowner Cassandra
is keen to ...Pay off
the loan
from
parents
Rebecca is moving cities but should ...Rent out the family home
Q
We are about to relocate to
Melbourne from Perth for
five years. My husband will
earn about $140,000 and I will earn
about $40,000 a year.
We have a home in Perth, near
the city, worth about $750,000. Our
mortgage is $350,000. We could rent
this for about $420 a week. We have
about $300,000 in super. We also have
two young kids. Rent in Melbourne
will be $600-$900 a week.
We thought we would like to keep
our house in Perth if possible, but
could sell this if we decide to settle
in Melbourne after a few years.
Can you advise on how to manage
the Perth property while we pay rent?
Should we pay interest only (then
positive cash flow), or also pay off
the principal, which will mean we
have a lot of income tied up in rent
and the home loan?Hi Rebecca. Given your move to Mel-
bourne may not be permanent and
you may be back in Perth in five
years, I agree with keeping your
home and renting it. I am really
surprised that your rent would
be only $420 a week. This is
quite a specific number so I
assume you have checked with
an agent. I know Perth sales and
rentals are slow at the moment
but $420 a week is around
$22,000 a year, or about 2.9% of
the value of your home. As it is close
to the city, this is lower than I would
expect, so I would suggest a
second opinion.
But even if it is $22,000 a year, I’d keep
up the principal and interest if you can.
Your interest should be 4% or a bit lower,
so that’s $14,000 a year. Add insurance,
agent fees and maintenance and I think
you will still be close to break-even on aCongratulations on buying your first
home and also your commitment to
saving – $47,000 in your offset
account is a great effort.
I also admire your plan to clear out the
variable part of the loan and free your
parents from the guarantee. But I don’t
really think it matters how you save.
Your offset account should be the same
rate of interest as the variable loan butyou do have access to the money in the
offset account. Check with your bank
but I don’t think there will be any differ-
ence whether you save $93,000 and
pay off the variable part, or simply pay
more into the variable part of your loan.
The key issue in terms of building
future wealth is that you do what you
are doing now and stick to a disciplined
savings plan.principal and interest loan. If that
stretches the budget I am quite happy
for you to go interest only, but if possi-
ble I’d really like you to keep repaying
that loan. If you are back in five years,
a decent chunk of your loan will be
gone. It creates wealth automatically.Q
&
A