Loan reduction is smart move

The article recommends focusing short-term on reducing the home loan. Stephen’s regular repayment of about $277 a week is barely covering interest, so accelerating mortgage repayment reduces the total interest paid to the bank and is tax‑effective because owner‑occupied home loan interest is not tax deductible.

About $40,000 a year — nearly 55% of his annual income — is being consumed by loan repayments. That leaves only a small surplus cashflow of about $4,000 a year, or even less if he spends more than his estimated $15,600 a year, creating tight short‑term cashflow.

Yes. The article notes paying down the home loan is tax‑effective because interest on an owner‑occupied home loan is not tax deductible, whereas interest on an investment loan typically is deductible. Reducing non‑deductible interest payments lowers overall after‑tax costs.

A $277 weekly repayment is described as barely covering the interest, which means principal is being paid down very slowly. The article advises accelerating repayments so Stephen reduces the amount he ultimately pays to the bank.

At the current trajectory he is on track to retire with about $275,000 in super (in today’s dollars). That could provide a pension of about $60,000 a year for a little under five years, or about $30,000 a year for roughly nine years — outcomes described as modest.

Salary sacrificing $10,000 each year into super could grow his balance to around $550,000 by retirement (in today’s dollars). That increase would save tax and could allow a pension of about $30,000 a year for approximately 24 years, substantially improving long‑term retirement income.

The advice in the article is to direct all additional commission income and any surplus cashflow towards reducing the home loan. Prioritising mortgage reduction reduces non‑deductible interest and improves cashflow flexibility over time.

The article suggests a two‑stage approach: first, focus on accelerating home loan repayment to ease high interest costs and tight cashflow; second, once the mortgage pressure eases, ramp up superannuation savings — for example by salary sacrificing additional amounts (the article models $10,000 a year) to materially improve retirement outcomes.