The protagonists of this story are a newlywed couple in their early 30s. Three years ago, they purchased their first home, a property worth $800,000, with a $640,000 loan to start their new life together. Since then, they have diligently paid off their loan, reducing it to $550,000.
Recently, the husband transitioned to a new job with a higher salary, prompting the couple to consider additional investments for their future. They became particularly interested in leveraging negative gearing to maximize tax benefits while growing their assets.
Evaluating Home Value and Available Equity
The couple worked with a broker to assess the current value of their home. Fortunately, the property value had increased to $880,000, revealing $154,000 in equity they could use as a deposit for their next investment opportunity.
Refinancing Terms
Their current loan with Commbank had an interest rate of 6.3%. However, the broker found that refinancing with Westpac would lower their interest rate. The couple ultimately decided to refinance under the following terms:
- Existing loan of $550,000 → New interest rate: 6.01%
- New loan of $154,000 → Interest rate: 6.29%
Cost Savings and Strategy
By refinancing, the couple reduced the interest rate on their existing loan by 0.29%, leading to annual interest savings of approximately $1,595. Additionally, they decided to place the new $154,000 loan in an offset account until they find the right investment opportunity. This allows them to avoid unnecessary interest while preparing for their next step.
The new $154,000 loan will be used to purchase an investment property, and the associated interest costs will be tax-deductible.
Next Steps: Exploring New Investment Opportunities
With their broker, the couple confirmed their borrowing capacity of up to $500,000. They are now exploring the market for a suitable investment property. “This is our chance to grow our assets!” they said, as they prepared their investment strategy. The couple is optimistic about using their new property to build wealth and maximize tax benefits over the long term.
Conclusion
This newlywed couple’s story is an excellent example of using refinancing to lower interest rates and leverage available equity for new investment opportunities. With careful planning and the support of their broker, they opened the door to simultaneous asset growth and tax savings.
Investing and managing assets can create a better future for all of us with just a little effort. If you have any questions, feel free to leave a comment! 😊