ASK PAUL
Whenthemortgageis paidoff,Aliciais ...
Q
My husband and I earn a combined
$130,000pa and we owe $70,000 on our home
loan. We have no other loans and no children.
We also have no foreseeable big costs coming up,
apart from maybe another car in the next year or two.
We are hoping to travel and work around Australia
indefinitely in a few years. We are in our early 40s
now. Our question is, after paying off the home loan,
should we invest in another property or shares, or
save our cash for our future? We currently have no
savings, as all our extra cash is going into the home
loan, but we can redraw if needed.You are making great progress on your mortgage, Alicia,
and using an offset account to access your cash if needed
is a great idea. No doubt you are also building up super via
employer contributions.
Once the mortgage is fully offset, or before that if you
prefer, you have plenty of positive options. With interest
rates dropping and at historic lows, the option of buying
an investment property in this market downturn is an
interesting one. Property is a pretty easy asset to under-
stand. Its value is driven by supply and demand. A growing
population in most parts of Australia adds to demand, and
providing people have access to reasonably paid jobs the
future for property values looks positive.
This is a classic risk-and-return scenario. Adding to your
offset account is pretty much risk free. The return you get
is effectively the interest rate on your mortgage, which
shouldbeunder4%.That is a pretty nice return with no
risk.Sopayingoff your mortgage makes a lot
ofsense.If you were to buy an investment
property now, you would want to be
confident it would do better than 4%
a year for you. This is a personal
choice and I’ll leave that with you.
But I do like your plan to pay
off your home, buying a well-
located investment property
is fine and I would like you to
ensure you are in a good, low-
cost super fund. That will add
investments such as local and
international shares to your mix.
As the decades go by, if you own
your home, have a good amount in
superand another investment such
asa good property, then financial freedom
is in yourgrasp.Keen to start
investing
A
Q
My partner and I are lucky enough to have had an offer
on a house accepted. While this is a very exciting time
for us, it also poses many questions about paying off
our mortgage as soon as possible. As the settlement isn’t until
December, this provides us with time to explore our options
in regards to mortgage minimisation strategies.
At present, neither my partner or I are utilising the first
home super saver scheme (FHSSS). Is it possible to still access
the advantages of the FHSSS with post-tax contributions for
this financial year [2018-19], then utilise $15,000 worth of
salary sacrifices next financial year? If so, what impact will
that have on our HECS repayments this and next financial
year as we both have HECS debt and I already salary
sacrifice due to my profession (non-profit health care).
As our mortgage will be roughly $420,000 (about $900
a fortnight) to begin with, what is the most beneficial way to
recycle this loan into tax-deductible debt while minimising
the duration of, and interest payable on, our mortgage.Great news, Angus! The major problem I have is that this is the
August issue of Money magazine and we are past the June 30
end of the financial year. So let’s focus on what might lie ahead.
A real trap for many home buyers is paying down their mortgage.
It sounds like a great idea. You cannot claim tax deductions on your
home loan, so just try to get rid of it. The problem here is that many
people try to keep their family home as an investment property
when they buy another place to live in.
But if you pay off the mortgage in part or in full, the level it is at
when you start to rent it out is the maximum amount on which
you can claim interest as a tax deduction. As a result many people
end up with a large, non-deductible debt on their new home and
a small, deductible mortgage on their old home, which is now an
investment property.
For you it is about the future. So only add to your mortgage via
an offset account, which does not change the size of your mortgage.
You could use that money in time to come to help buy your next
home, but have your mortgage at its maximum size if you keep
it as an investment property.With an offset account, Angus would be able to ...
Maximise the
deductible debt
Q
&
A