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ASK NOEL

If you had a mortgage of $250,000 and savings of $50,000, would you be better off putting the $50,000 into the mortgage as a redraw, thus saving interest with the loan amount being reduced, or would it be better to put the $50,000 into a savings account at 6.5 per cent return while accumulating a deposit for a new home so one could keep the existing home as an investment?

If you had a mortgage of $250,000 and savings of $50,000, would you be better off putting the $50,000 into the mortgage as a redraw, thus saving interest with the loan amount being reduced, or would it be better to put the $50,000 into a savings account at 6.5 per cent return while accumulating a deposit for a new home so one could keep the existing home as an investment?

If you place the money in an interest-bearing account, you will pay tax on the interest. I prefer the offset strategy because it gives you maximum flexibility and also the highest return after tax. Furthermore, if you rent the house out, eventually you will have a higher deductible loan as the money in the offset account would be available as a deposit on the new home.

I'm 50 and not working this financial year. I have income from shares and rent. My super is under $50,000 and I've just transferred it into a retirement savings account. Can I make concessional contributions to my super? I've made phone calls to my fund and the call centre couldn't tell me how to do it.

As you are under 65, you can contribute to super without passing the work test. Just keep in mind that your concessional cap is limited to $50,000 this financial year.

I'm 53, work in Sydney and earn $75,000 a year. I have a $750,000 home in another city, $200,000 in super and $250,000 in shares. My wife stays at home. As we like the weather in Sydney, we're thinking of buying a house instead of renting. One option is to sell the other house and use the money to buy one in Sydney. Another option is to borrow $500,000 and sell $200,000 worth of shares to cover stamp duty and 20 per cent of the purchase price and buy a Sydney investment property, into which we could move after 10 years. The rent collected from the house in the other city and the investment property would be sufficient for the interest and principal payments of the loan. Which option is best?

If you feel your home has potential, you should keep it. Once you rent it out, you can claim all the outgoings, including interest, as a tax deduction and provided you move back to it even briefly within six years, you will not lose the CGT exemption. If you intend to eventually live in Sydney, it makes sense to buy now, but because renting is far cheaper than owning, I think you should continue renting while negatively gearing the property. Make sure you check all the outgoings before committing yourself and factor into your budget the possibility of interest-rate rises.

Noel Whittaker AM is a co-founder of Whittaker Macnaught. Advice is general and readers should seek their own professional advice. Contact noel.whittaker@whittaker macnaught.com.au.


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