In some parts of the US, interest repayments for homeowners (not investors) are tax deductible.  This gives people who own their own homes some ammunition in the supply and demand housing battle against investors.  In Australia of course, our tax laws are the exact opposite.  Only investors are eligible to claim the interest on their mortgage repayments which some argue gives them an unfair advantage over people wanting to buy their own homes.

Some would argue that the Australian Government has attempted to shift this advantage of investors toward homeowners by offering incentives such as the First Home Buyers Grant, but with the grant amounts now severely diminished from their previous amount prior to 31st December, this reduces the playing field for home owners.  This isn’t the only option however!  Many home owners are unaware that there is actually another strategy that they can use for assistance from the Government with the mortgage on their home.  Enter the tax deductible home loan.

The Tax Deductible Home Loan

At Financial Spectrum, we don’t have solutions to fix the supply-demand imbalance that exists in the housing market, nor a method to make real estate more affordable, and we certainly don’t have control over current legislation.  What we do have, however, is a revolutionary new method to help you to pay off your mortgage faster than you could have imagined whilst building up an investment portfolio at the same time.  Sounds too good to be true?

This strategy is not as simple as ticking the right box, or by having a different home loan, and it’s certainly not about non-compliance with the tax law.  It’s all about using efficiency in how you approach, structure, and manage your personal financial situation which will allow you to either pay off your home faster, or slower whilst enjoying a better cash flow along the way.

The basic idea behind this strategy is to use a flexible structure and within the confines of the tax laws to build up an investment portfolio that grows over time, harnessing the income from that portfolio to your benefit.  Gradually, your home loan becomes tax deductible and eventually the ATO is actually helping you to pay off your own home.

Just like anything good in life, it’s important to have a clearly laid out plan, and then execute that plan to perfection.  We can’t give you a step-by-step “how to” guide here because each person is going to have a different set of circumstances and therefore different needs.  There are no “out of the box” solutions – this strategy needs to be tailored to your personal needs.  However, there are some things to consider as a starting point to see whether this might be an option for you:

Could a Tax Deductible Home Loan suit me?

As a minimum you’ll need the following:

  • A home (this could also be a unit or a townhouse, not just a house) and a mortgage on this home
  • At least a bit of equity in that property
  • A mortgage that is set up properly
  • The right type of risk personality.  We profile our clients from ultra conservative through to very aggressive.  This type of strategy doesn’t suit everyone.
  • A willingness to take the strategy we tailor for you and the discipline to run with it
  • A solid cash flow (don’t have a good cash flow?  You’ll need to have a meeting with one of our financial planners to get this sorted out first!)
  • The right time horizon.  This strategy takes a while to build up momentum so it won’t suit you if you’re looking for a very short term strategy.  If you’ve got a longer time frame to work with though it could save you hundreds of thousands of dollars and build a very strong investment portfolio so it could be time well spent.

Of course, you’re bound to have many questions about this strategy – least of all will be whether it could suit your personal situation.  A financial planner at Financial Spectrum can answer all your questions about this strategy and assess whether it could be right for you.  Give us a call on 1300 886 018 or complete the meeting request form on our website to arrange your first free appointment with one of our financial planners in the Sydney CBD.

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One Response to “The Tax Deductible Mortgage”

  1. Shannon Upston January 11, 2013 at 4:32 pm #

    Hi Guys
    Just interested in making my home mortgage repayments on home tax deductible.
    It sounds great and am very interested, however is this tax evasion and will the ATO frown on this?
    I currently have a home loan of 219K and home is valued at 340K looking to pay it off as quick as I can. Your feedback would be appreciated
    Kind regards
    Shannon Upston