Is your home loan a smart debt?
Optimising your home loan for whatever stage you're at in life can make a big difference to your financial bottom line.
Your circumstances may have changed from when you first got home finance: for example, you may be starting family, need a bigger home for a growing one, looking to build an investment portfolio, maybe help your kids get into the property market or downsizing ahead of retirement.
As your lifestyle changes, it's worth looking carefully at how you buy and whether the way you finance property should also change. Most of us think about getting the best deal on the loan, but often overlook at whether the arrangements we have in place are still right for our new circumstances.
The way you set up your mortgage can have unexpected consequences for your tax and your cash flow, so a change in life circumstance is actually the perfect opportunity to tap into the knowledge and experience of both your mortgage broker and your accountant with a free finance health check.
Property investment, be it your home or a rental property, requires a long-term view. There are several scenarios that are likely to impact your debt profile: your personal circumstances, the property market, new and better finance products and, of course, changes in tax legislation for property investors.
Sometimes it's the chicken versus the egg: the tax considerations might affect the finance structure, or vice versa. When your mortgage broker and accountant work together, you're more likely to get the best outcome possible because both sides are under review.
Your mortgage broker and accountant can periodically review your loan arrangements, risk profiles and the structure of how you buy property and provide a professional perspective on your finance arrangements to ensure they remain "smart debt".
Your mortgage broker is one of the best starting points for making sure you've got the best financial arrangements in place as well as keeping an eye on the longer term goal. He or she will continue to cast their professional eye over your mortgage and keep abreast of what's going on in the market.
For example, if you're looking to buy a new home or re-evaluate the mortgage on your current property, your mortgage broker can really help you to get the best home loan deal for your circumstances.
You may want to:
- Use the equity in your home to renovate or build an investment portfolio
- Consolidate other loans into your mortgage to reduce interest costs
- Look for ways to save on interest or pay your mortgage off sooner.
- Reduce your payments to accommodate a change in your financial circumstances.
Your broker can break down the options available and help you to negotiate the best deal before you buy or make sure your current mortgage is appropriate for your needs.
A good mortgage broker will also work closely with your accountant to ensure that any finance is properly structured with due consideration to tax and costs that may arise from the structures you use.
The cost of your property, finance arrangements in place and tax issues aren't the only considerations.
Along with your mortgage broker, your accountant is well placed to understand how your property investment strategy and loan arrangements can benefit or negatively impact your wealth and tax position.
If you have both personal and business assets with security attached to them, then understanding your options for structuring debt, protecting yourself, your family and your investments as well as having an estate plan in place will provide significant peace of mind.
Your accountant will look at reducing risks, ensuring there is flexibility in the finance structure, help you as you navigate through different options for your property strategy and support you with administration that goes with it.
Bates Cosgrave works with Finance Logic to help our clients take advantage of better mortgage options as well as ensure that your home loan or investment loans are as tax smart as they can be.
As with any finance arrangements, there are some key questions that you should be asking yourself from time to time to make sure you're getting the best deal:
- Is your current home loan more than 3 years old?
- Have your circumstances changed since you took out your mortgage?
- Are there changes you want to make that might affect your mortgage?
- Is your home loan still competitive to other offers in the marketplace?
If you've answered yes to any of the questions above, then a free health check can help you assess whether your loan is still right for you.
Last updated November 2014. This factsheet is provided for information purposes only and is correct at the time of publishing. It should not be used in place of advice from your accountant. Please contact us on 02 9957 4033 to discuss your specific circumstances.