In this blog and video, we discuss the pros and cons of each strategy:
Paying off your home loan
Rent-vesting
A combination of strategies
Strategy | Pros | Cons |
Paying off your home loan | · Paying off your home loan is a forced savings mechanism as it always requires principal repayments.
· Your primary residence usually receives a capital gains tax exemption.
· When interest rates are high, it can be more effective to pay off non-deductible debt relative to other investment options which incur tax.
· You can receive lower interest rates when your loan to value ratio is below certain thresholds such as 80%. | · This strategy may not optimise your wealth position for certain clients.
· When interest rates are low, it can be more effective to invest than to pay off non-deductible, depending on a person’s tax rate. |
Rent-vesting | · Allows you to live where you want.
· Provides deductible debt.
· Helps people with lower borrowing capacities get into the property market. | · CGT is usually payable when the property is later sold at a gain.
· This strategy is not effective for properties with low growth rates.
· If you have an interest only loan supporting the property, you need to consider saving beyond the minimum repayments as there is no ’force savings mechanism’. |
A combination of strategies | · Provides a good level of diversification.
· Using equity within your home to invest can be an effective strategy for building wealth.
· High income earners can often benefit from strategies such as negative gearing, using family trusts or making extra super contributions. | · These strategies are more complex and requires you buy the right types of assets.
· The assets should be owned in the right name/entity or high levels of tax could be incurred. |
General Advice only. We recommend reaching out to us for guidance, particularly if you are or are thinking of being a rent-vester or operating a combination of financial strategies!
To book in your free initial chat:
Yorumlar