ASK NOEL
Sydney Morning Herald
Wednesday June 24, 2009
My wife and I have a young family and are going to outgrow our car soon. We have a combined income of $105,000 and $35,000 of equity in our home. The car is worth about $10,000 as a trade-in. Would a redraw on our mortgage or a separate car loan be better?Ideally you would redraw part of your mortgage for the car and increase your total home-loan payments by the amount you would pay on a personal loan if you took one out. However, because you have relatively small equity in your home, the bank may not allow you to do this without costly mortgage insurance. The simplest option may be to take out a personal loan - just make sure you opt for the shortest term you can afford to minimise interest.Can you advise if the new contribution limits include the contributions tax? For example, if one salary sacrifices say $100, then $15 makes its way to the ATO, is the tax to be included in the $50,000 (for those over 50)?The whole contribution goes into the fund and then is treated as taxable income by the fund. As funds pay income tax of 15 per cent, you are in effect losing 15 per cent of your contributions when the fund's books are done. So, on a contribution of $100, your fund gains $85 but the whole $100 counts.I read, in one of your previous columns, that the optimum home loan repayment is $12 per thousand per month. What does this mean and how does this equate to a $400,000 loan with a 25-year term?As you travel through life trying to pay your bills and build wealth at the same time, you should understand that becoming wealthy is like a game of Monopoly - the one who does best is the person who can control as many assets as possible. The purpose of my $12-per-thousand rule is to enable you to pay your house off in a reasonable time with a minimum of interest and still have money left over for investment. On a $400,000 home loan, optimum repayments of $12 per thousand per month ($4800) would have the loan paid off in nine years if rates were 6 per cent, or 10 years if rates were 8 per cent. Because the term is relatively short, the rate does not matter too much. Any spare funds can then be directed to investment.This article is general in nature. Seek further advice before making financial decisions. My partner and I are both 53 and would like to retire at 58. We both salary sacrifice as much as we can - $35,000 for me and $95,000 for her. The tax benefits are not as helpful for me but I'm trying to reduce my assessable income as I will have to pay capital gains tax. We both own a house and will have $120,000 each to put into super from the impending sale of an investment property. In these days of falling super returns, would it be wise to change from a growth to cash option until the market improves? I feel as though as soon as I salary sacrifice into super, I'm losing hard-earned money. We are a same-sex couple and continue to have separate super schemes until any legislative changes become law.You're not losing hard-earned money when you salary sacrifice to super; you're simply moving it in a tax-effective manner to an environment where income tax is just 15 per cent. Only you can decide when the market has bottomed but as you are 53, you most likely have 30 or 40 years ahead of you and can take a long-term view. I believe trying to second guess the market is bad - you are better off deciding upon an asset allocation with your adviser and sticking with it in good times and bad.Noel Whittaker is a director of Whittaker Macnaught, a licensed dealer in securities. Questions to Ask Noel, Money, GPO Box 2571, Qld, 4000, or see moneymanager.smh.com.au/sitewide/askanexpert.html.
© 2009 Sydney Morning Herald
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