Growing wealth through mortgage strategy

Did you know that an effective mortgage strategy can actually help you grow your wealth?

Here are some handy tips…

Offset Account

An offset account is a transactional account linked to your home loan. The balance held in this account “offsets” the balance in the mortgage, helping to reduce the interest paid and overall term of the loan. Many lenders offer a 100% offset account as a feature with standard variable home loans.

The money deposited in the offset account can be withdrawn at any time. This arrangement offers major tax advantages for borrowers to pay off owner-occupied properties (which don’t offer tax deductions on interest) while still retaining access to the money. Mortgage offset accounts provide financial flexibility to homeowners.

Managing your money

Money management is of the utmost importance. It is vital that you are aware of all expenses and remaining income, as this is what you will have left to pay off your debt. You will also be quick to realise how much money you can use to invest.

Work with your 1st Street mortgage broker on building out a detailed budget so you go into the transaction with a clear idea of your financial situation.

There are plenty more clever ways to utilise loan products to enable you to grow your wealth and manage your risk. If you would like to discuss further, please get in touch.

Take advantage of interest deductions

The only way to take advantage of your interest-related deductions is through borrowing to pay for investment and business purchases and expenses.

If you don’t borrow upfront to cover for all expenses relating to the purchase (which are deductible) you will end up paying for these deductions post-tax instead of pre-tax. Before proceeding with any investment decision and potential tax deductibility, we advise you to speak with your accountant prior to making any commitment.

Risk management

Risk management is key, and it is important to have cash flow and funds should financial pressure hit.

Here some ways you can manage your risk:

  • creating buffers using equity, redraw and offset accounts
  • borrowing for asset purchases to maintain cash without paying extra interest due to the use of offset accounts
  • fixing interest rates on your debt to provide certainty
  • restructuring your repayments in advance of cash flow changes, such as parenting, employment changes and property purchases
  • depending on your circumstances, utilising one lender or multiple lenders or delinking mortgages. Alternatively, cross collateralising can be a positive subject to other strategies executed, contrary to popular opinion.

Hold properties

Each of the four preceding strategies can positively impact your ability to hold property. You can optimise current and, importantly, future tax deductions, minimise debt on a future home while optimising deductions on an existing home when it becomes as investment. This requires aligning your mortgage strategy with your future property planning and goals.

Having to sell property you could have otherwise held over your lifetime is one of the big killers of financial wealth. Keeping property that you would have otherwise sold may literally add a million dollars or more to your bottom line in retirement. This is a mistake I made in my early years, and a prime example of the unrealised power of an effective mortgage strategy.

Your mortgage strategy will have a huge impact on your ability to maintain positive cash flow, property and investment opportunities. Feel free to contact 1st Street should you have any queries or like to discuss this in more detail.