Money Australia – July 2017

COVER STORYSMART STRATEGIES FOR EVERY INCOME BRACKET

STORY
LAURA
MENSCHIK

pre-approval for when she starts seriously looking. This

way she knows what she can spend (including stamp

duty and other costs).

For her first home, which she may want to keep as

an investment property in future, she could consider

using an interest-only loan with an offset account for

her loan structure:

• By using an interest-only loan, she is not reducing
  the principal (balance) of the loan. However, any funds
  she has in an offset account will reduce the interest she
  pays on the loan, which has a similar effect to reducing
  the loan balance. For example, if she had a $500,000 loan
  and $200,000 in an offset account, she would only be
  charged interest on $300,000 – the loan balance less the
  offset balance. Funds accumulated in an offset account
  can be withdrawn and used for other purposes as they
  are not actually reducing the balance of the loan.


• Interest paid on a loan that funds an investment
  property is tax deductible whereas interest on a home
  loan is not. If she wanted to keep her first home as an
  investment property and upgrade to a new home, to be
  as tax effective as possible she would want the loan on
  the new home to be as low as possible (the interest is

S

ophie,29,earns$120,000ayearplussuper.

Because of employment opportunities, a

few years ago she moved away from home

and has been renting with a friend. She has

been a good saver over time, using an

account set up years ago by her parents when she was

in school.

Although she earns good money and is a good saver,

she is financially naive about managing her financial

situation more effectively. She has not compared inter-

est rates, bank accounts or any money strategies, as she

has been satisfied with her savings regime.

Sophie does have car insurance but she has no other

insurances, such as private health cover. Her main goal

is to get into the property market and now she wants

to make a concerted effort to buy a property, either to

live in or as an investment.

Three key tips for Sophie are:

1

Health fund cover

Sophie should contact health funds to compare the

type of cover that would be suitable for her. She shouldn’t

get cover for conditions or items she doesn’t need. There

is a penalty for people aged over 30 who do not hold

private health insurance hospital cover. For each year

over 30, a 2% loading (cumulative) is added to the pre-

mium up to a maximum of 70%. Health funds are

required to charge different premiums based on the

age of each member, depending on when they first took

out private insurance.

Also, Sophie should note that there is a Medicare

levy surcharge, which is levied on taxpayers who do

not have private health insurance. With Sophie’s current

income, she would have an extra 1.25% applied to her,

above the 2% Medicare levy. Having private health

cover actually provides two financial benefits.

2

Buying her first home

Sophie is considering buying her first home. She

has been with only one bank and may lazily go to it for

a mortgage. She should now contact a good mortgage

broker who can find the right loan arrangement for her

(as they deal with dozens of loan providers), work out

her borrowing power, do the legwork and help with

Getting into

the property

market is a

challenge

but the right

kind of loan,

coupled with

first-time

buyer

incentives,

can make

it easier

$120k

a year