Ask Noel

Each week, financial adviser and international best-selling author Noel Whittaker answers your questions.

My partner and I are 31 and 27, and we each earn $80,000 a year. We have saved $30,000 and hope to buy property. We would like to live in our area, but it would be too expensive on one income if we were to start a family soon. We want to keep renting in the short term, accumulate investment properties, then buy a home when we are on higher incomes. We are looking at regional areas and plan to buy an investment property for $150,000. Are we best to spend the minimum deposit and retain funds to buy another property in a year, or should we put all our savings on one property? We have $2000 a month available after expenses. Should we use this money to pay off the mortgage on the investment property, or save it for further opportunities?

What you are proposing seems reasonable if you believe you have the skills to find undervalued properties that will improve in value. Ideally, you would have a 20 per cent deposit so you won't have to pay mortgage insurance, and would take the loan interest-only, coupled with an offset account. This would give you maximum flexibility because your surplus $2000 a month could be parked in the offset account. Shares are also a great asset for the long haul, so think about diversifying as time passes.

I'm 30, my wife is 29, and our combined income is $140,000. We have $35,000 cash, $65,000 in shares and $45,000 in super, no debt, and save $1500 a fortnight. We are hoping to start a family in 12 to 18 months and buy a property in a few years, using a First Home Savers Account. How does the bank take into account the equity in shares when it determines capacity to buy property? Would it be better to focus on putting away more cash, or will a lender consider shares and cash equally? I would prefer to buy shares in the short term and take advantage of dividends and capital growth, instead of building up a large deposit through cash. Do you agree?

The bank will take into account your income including from investments, savings record and income stability. It will look at your shares as part of your savings history towards the deposit, perhaps wanting confirmation you have held the shares for at least six months, and that they can be sold quickly if necessary to increase the deposit. You should try to arrange your assets so you have at least a 20 per cent deposit to avoid mortgage insurance, even if you need to sell shares. Ideally, you would sell all your shares to maximise your deposit and then borrow back with a home-equity loan to buy more shares. You would need to take capital-gains tax into account with this strategy.

Noel Whittaker is the author of Making Money Made Simple and numerous other books on personal finance. His advice is general in nature. Readers should seek their own professional advice before making decisions. Email: noelwhit@gmail.com.



New-home deposit deserves energy

The explainer

We have an investment property with a $336,000 mortgage fixed at 6 per cent, interest only, for the next two years. For the first two years we rented out the property but recently had to move into it. We have saved $40,000 for a deposit to buy a house soon for about $450,000.

My husband is 34 and earns $96,000 a year. I am 38 and am on maternity leave so might earn only $20,000 this financial year. We are wondering whether it would be more beneficial to keep saving for a deposit on the new home, or start paying off the mortgage on the investment property.

If the mortgage is at a fixed rate, you will probably find it is not possible to make extra repayments before the fixed-rate term expires. If you intend to keep the home and rent it out, you should be trying to keep the loan as high as possible to maximise your future tax benefits. Make the minimum repayments necessary on the investment property and focus your energies on a deposit for the new home.