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Mortgage reduction scheme

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Nila Sweeney

Q. Recently I had a brief session with a financial adviser where we talked about my $150,000 mortgage on my residence (worth $450,000). He tried to describe to me a ‘Mortgage Reduction Plan’ which would allow me to pay off the mortgage a lot faster and with less of my after-tax income. It basically involved two new interest only loans (a personal and an investment) with a line of credit, gearing and tax deductions. After our brief discussion I was not clear on how the whole thing worked and if it was legal. Please help me.

A. There are ways to do this that won’t put you into jail. One approach would be to refinance with the existing lender or a new lender, using an all-in-one loan that puts your salary into an offset account. However, I don’t understand how he would split the mortgage into two loans with one negatively geared for tax benefits, as you can’t usually negatively gear your own home. Normally there must be some sort of rental income involved. Be very careful. Ask your advisor where the loans are coming from and then quiz the lenders or review the documentation in detail. Make sure that they know what they are lending you the money for. If you manage to get a loan under not quite legitimate circumstances, the lender is quite entitled to pull the rug out from under you when they find out.You might be just as well off with an all-in-one loan with an offset facility which would allow you to concentrate on reducing the outstanding amount and interest costs as quickly as possible.

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