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API JANUARY 2014
JANUARY 2014 API
another property investment.
However, if you aren’t already with a
lender that allows easy switching without
a new credit application, you’ll not be
able to do either step two or step three.
Given this, you need to prepare for higher
interest rates and build into your budget
repayments of at least 7.5 per cent, if
It’s vital that you know if you can afford
this. If you can’t then one of two actions
should be taken:
> Sell one of the properties now while
you still have control of the outcome
and while the market in most parts of
Australia is strong.
> Danee will need to take less time out of
the workforce and return to work sooner
should rates increase.
With the new addition to the family
it’s also vital you review your personal
This will protect your family’s cash flow
in the event of a disability or illness and
also in the case of death.
Given the position of your cash flow,
and the tax benefits of holding cover
I would suggest you hold life, total and
permanent disability and even income
protection insurance through your
Outside of superannuation this will only
leave you with the cost of trauma cover.
This brings us to your super. When
reviewing your insurances, you should
also take the opportunity to review your
Ensure they are invested in such a way
that it suits your overall tolerance to share
market volatility and your investment
timeframe to retirement.
It’s also important to note that although
there can be a difference in fees between
superannuation funds, it’s often the
insurance premiums that the fund will
charge and the quality of the policy that
will become the deciding factors between
I would strongly recommend seeking
professional advice from a financial
specialises in both
They will assist
you in both helping
to determine the
level and types of
cover you require
and also ensure the
premiums you pay
are competitive and
being paid in a tax
Don’t be tempted
by direct insurance
solutions offered on television.
These often cost you two to three times’
the amount of a solution provided by a
In addition, they’ll not be able to be
held through your superannuation fund,
resulting in the premium payments not
being tax effective.
Further to this, if you use a financial
planner, they’ll also be there to assist
you in the event that you need to make
Now to your goals. Ensure you don’t
make further principal reductions to your
mortgages. Instead, build up the cash in
your 100 per cent offset account. This will
provide you the most tax flexibility when
you go to purchase another property in
You should only consider purchasing
another property when you can afford it,
so don’t set a timeframe on this.
When you make the next purchase
ensure all of your existing properties
have rent that’s sufficient to cover
both principal and interest mortgage
repayments at a benchmark rate of at
least 7.5 per cent per annum.
This rate is the average rate for the
Australian mortgage market over the past
For some clarity on your experience with
the ‘property agent’ when you purchased
in Newcastle – in dollar terms, the agent
would’ve only received approximately
$180 extra in commission and you
certainly shouldn’t have felt forced into
these extra borrowings.
Importantly, these extra funds never
should have been drawn out of the loan
account at settlement and certainly
shouldn’t have been put against the
Darwin property, as you have now mixed
the purpose of the Newcastle property
loan from a tax point of view, which is an
unfortunate consequence. API
Wayne Stammers, partner with
Charterhouse Financial Planning,
Dominique Bergel-Grant, founder and
principal financial adviser with Leapfrog
Financial and Leapfrog Women and
If you would like to have our experts plot
your roadmap to property wealth please
> Make sure you have adequate life
insurance in place for both yourselves
and your portfolio.
> Consider estate planning, wills and
power of attorney.
> Follow a mortgage reduction strategy
to clear the Darwin mortgage.
> Understand what your new borrowing
capacity is now.
> Maintain a clear budget and cash flow
while on a single income.
> Build up cash in an offset account.
Experts’ suggestions in a nutshell
The advice contained in this article is general advice only. The contents have
been prepared without taking account of the reader’s objectives, financial
situation or needs. Because of that the reader should, before acting on the
advice, consider the appropriateness of the advice having regard to the
reader’s objectives, financial situation and needs. We recommend readers
speak with a professional qualified financial adviser before making any
The Darwin property
æYou’ll need to have a clear budget and cash flow understanding
while you remain on a single income.Æ
ROADMAP TO WEALTH // JASON AND DANEE SMITH
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