H
i Dom. I remember this stage of
life, though it does fade as I rapidly
head for 64. With the benefit of
hindsight, it is really interesting how life and
money move through distinct stages. During
school it was all about earning a bit of money,
firstly picking oranges and then, when I hit 18,
working in a pub. My uni years were great fun.
I was pretty poor, but it did not feel like it. Beer
was only 33¢ for a schooner and my pushbike
was cheap to maintain.
Then it was the first “real” job, back in 1979.
My salary was $13,000 and I had so much
money I didn’t know what to do with it ... until I
got married and along came a mortgage. Then
I was at your stage, making progress with the
mortgage, but children were coming along and
we also had issues with space for our three
kids, not to mention school fees.
You will be pleased to hear that with careful
control of your money, as you are doing now,
in about 20 years another stage comes along.
This one is a cracker. For me it is like being
back at uni, only I have more money. With
adult kids, no mortgage and money invested,
you can plan for this stage of relative freedom.
It is terrific!
At just 37 you are tracking well. Your
mortgage is under control; you are saving
on a regular basis; you and your wife will
be building up superannuation; and youhave every reason to be optimistic about
the future. Now to your conundrum. I really
understand how hard you have both worked
to get money into the offset account. I have
to leave it to you to do a long-term financial
forecast and a budget, but my sense is that,
yes, you can afford to use the $116,000 in
your offset and borrow another $184,000
to get the $300,000 you need.
The repayments on $200,000 would be
around $10,000 a year and the fact that you
add $400 to your investments and are building
your offset account shows me you can afford
this. But the variables I do not know are
potential changes in your jobs and school fees.
School fees are quite predictable, and
you can build those into your budget. But
the change in jobs is a big deal. I presume
you would only change for the same or a
greater salary, but if there is to be much of
a delay between leaving and starting a new
job I would be cautious. More debt and job
uncertainty do not appeal to me at all.
This is an issue only you and your wife can
work out and plan for. One thing I know about
life is that it goes by really quickly. Your family
will get most enjoyment out of the renovations
right now, while the kids are young and at
home. It saddens me to see people playing
it really safe and extending as the kids leave
home. So I have no doubt that if I was in yourASK YOUR QUESTION
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this page will receive a six-month subscription.Would-be renovator’s $300k quandary
I
am 37 and earn$120,000pabeforetax.My
wife works part-timeandearns$30,000-
$40,000pa. Wehavetwokids,a boyaged
seven years anda girlagedthree.
Our house, in the inner suburbs of Brisbane,
is valued at about $780,000. Including an off-
set of $116,000, we owe $200,000. Our loan is
a mix of interest only and principal and interest.
Extra money goes in the offset against the
interest-only loan and we pay extra on theP&I.
We have a $50,000 loan invested through
the InvestSMART platform, with monthly
$400 additions. This is currently worth
$100,000. We have no other debts.
We have renovated upstairs (deck/
kitchen with CBD views) and want to
finish off the bottom by adding two
bedrooms (so the kids no longer have
to share), rumpus, bathroom, laundry,
etc. It will cost about $300,000.
I may change jobs soon and I am thinking
about school fees. Can we can afford the reno
now? I am reluctant to use the offset andthen
add $200,000 to our mortgage. Domshoes I would try to make the renovation
happen sooner rather than later.
You mention CBD views. From this I
suspect your house is in a good location with
the prospect of long-term capital growth.
So it seems reasonable to argue that the
$300,000 you spend is not wasted money. In
fact, it should increase the value of your home
by that amount or a bit more. So we have
a “balance sheet shuffle” where your asset
value is unchanged or maybe a bit better. The
big issue, though, is that the more valuable
asset, your home, does not produce income.
You and your wife do that.
I’d be looking to make this renovation
happen, but I would want to be very sure that
the new job on an equivalent or higher salary
was certain. You can plan for all the cash flow
issues such as school fees.
Anyway, I wish you all the best for the
potential new job and hopefully a beautifully
renovated house.Paul’s verdict:
Enjoy a lovely
home while the
kids are young
But more debt and
job uncertainty are
a risky mixPAUL’S VERDICT Paul Clitheroe
Happy days ...
Dom and his son.