Hi All
I had an appointment with a new Morgate Strategist on Friday, & a item of discussion was my current super which is a company super that I work for.
I mentioned I was putting a voluntary 6% additional into my super which works out to be almost $600 gross per month, He was horrified & said I was throwing my money away.
I started putting this extra amount in 4 years ago as a result of getting a pay rise & could afford to be without it, so put into my super. The way I saw it, it went into super & taxed at only 15%, where if I took it in my pay it was taxed at the highest amount. 47%Since then I got into investment properties & have 2 with the 3rd in progress.
My question is should I cancell the voluntary sper contribution take teh tax hit & put the money into the mortgage?
Any other suggestions? thanks in advance.
Hello Spud
Can't help you with your question except to say why don't you work it out. Go to one of the bank sites with a mortgage calculator and work out how much interest you would save if you reduced your mortgage by an extra $600/month.
Then use a spread sheet to work out what you are gaining including a conservative growth figure for the super fund.
The other thing to factor in is that you are locking this money away for many years.If you decide to pay extra on your PPOR mortgage you should consider paying it into a 100% offset account rather than from the mortgage itself. This way if you ever decide to get a new PPOR and use your current one as an IP you can use the cash in the offset account for your new PPOR leaving a large, now deductible, loan on your current PPOR. In fact I believe that many investors have an IO loan even on their PPOR and use an offset account to pay it down so that they have options for the future.
The other thing you need to do, if you're not already familiar with it, is educate yourself about debt recycling. This is a method of turning non deductible debt (i.e. your PPOR mortgage interest) into deductible debt. Since you have spare income and you're buying investments you should be able to benefit from this.
http://www.invested.com.au/2/advice-best-direction-here-16862/
This is a thread on another site which I found explained debt recycling (for me). Obviously you don't need to buy shares to use this strategy. You just need to use the funds for investing.
Basically in your situation at the moment it means that you shouldn't use cash for deposits for your IP's but use this money to pay down your PPOR mortgage and then borrow it again (via a LOC ?) against the equity in your home.
Please note I am neither a FA nor a MB. Just trying to point you to areas you should be familiar with.
Hope this helps more than confuses
ElkaMy 2c;
I reckon the only advantage of super is that it can be tax effective. Otherwise; it's the "investment" of the poor.
As Elka said; you lock away your money for years, the Govt is always fiddling with it, it's all linked to the shock and scares, and if there is a 1929 style crash, your retirement pocket money is pretty much gone, and you can do nothing about it.
Alternatively, the interest on your PPoR is not tax deductible, and if you use the realestate.com.au loan calculator, you can much around with the different amounts and see what the saving is when you pay more off the loan than your minimum repayments.
For example; on a $250k loan, at 8% over 25 years, if you change your repayments to weekly instead of monthly, and pay even just another $50 per week, the saving in interest is up around the $100k mark.
And you have access to those funds for more investing when you want.
I'm with elka and Marc, but perhaps even more emphatically. Super is a lousy investment, IMHO, unless you've already built a very large portfolio and are approaching the age at which you can gain access to it.
See my blog entry: http://www.somersoft.com/forums/blog.php?b=8
Warmest regards, Tracey in Brisbane
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