Rolling all loans into home loan could backfire badly
IN A recent article you warned about the inherent dangers in debt consolidation, and mentioned the scenario where a family with several personal loans could get out of trouble by focusing on paying the smallest loan off first, and then using the payments no longer needed for that to attack the second smallest loan. If a family could not do that, what would be the harm of rolling all the personal loans into their housing loan and so getting a cheaper rate overall.
Rolling all the debts into the housing loan would certainly pay them off quicker, provided the family were disciplined enough to increase the payments on the housing loan to dramatically speed up the loan term. The problem is that most people end up in financial strife because of bad money management – if they don’t change their ways many would be in worse problems if they increased the housing loan, as they would end up paying all personal loans over 30 years.
I’VE read conflicting information about the ability to “convert” a property from non-tax-deductible owneroccupied to a tax-deductible investment property.
My current understanding is that if a home loan is taken out for the purposes of buying a home to live in, and that property is later rented out, the loan interest cannot be claimed as a tax deduction against rental income because the original purpose of the loan was not for investment purposes. Is this correct?
I’ve recently read commentary suggesting that when the property becomes an investment property the interest becomes deductible even for the same loan.
The interest is not deductible while you are living in the property but as soon as you move out and rent it the rents become taxable income and all expenses, such as interest and rates, become deductible. However, if you move into your rental property the interest ceases to be deductible.
I HAVE a $200,000 mortgage. I am 60, not working or receiving any government support. I have $170,000 in super. Currently it pays my mortgage via a transition to retirement (TTR) but I am considering using my unemployment status to withdraw my super and pay it off my home loan. Is this the way to go or should I just enjoy the 10.5 per cent growth and leave it alone for now?
I think you need to take expert advice. As you point out, a good superannuation fund should generate better longterm returns than you would be paying in interest on the housing loan, so I don’t think you should rush to withdraw it.
Because your superannuation is in pension mode due to your transition to retirement pension it is counted for Centrelink purposes and may well be precluding you from any government benefits.
The best strategy may be to move your super back to accumulation, and just to make withdrawals as necessary – maybe every six months to cover your mortgage payments.
The problem is that most people end up in financial strife because of bad money management