Empowering Australians to Make Smarter Financial Decisions

In this scenario it is forecast that you will have a cashflow surplus of $74,013.73 for the 4 months to 30 June 2026. In the first full year you are projected to have a $94,270.42 surplus which will then grow to:

• A $103,846.10 surplus at the end of the projection period.

New PPR

Strategy Overview

This Scenario looks to increase your regular debt repayments throughout the year with any surplus income. This occurs as follows:

1. Additional debt repayments are made in order of highest to lowest (after tax) interest rate
2. Additional debt repayments are made first to non-deductible debts and then any deductible debts
3. Following all debts being repaid the surplus is then directed according to your stated preference

By making additional debt repayments you can both reduce the time it takes to repay the loan and the total interest cost over the life of the loan. A loans repayments are calculated such that it will be repaid exactly in the loan term, any additional repayments directly repay the principal and this compounds to reduce the cumulative interest you will be required to pay over the life of the loan.

Mortgage - New PPR: Australia Bank Mortgage

By increasing your repayments to the amount projected it is projected that:

• This will be repaid in 13 years compared to 27 years in the base scenario
• The total interest paid over the life of the loan will be reduced by $644,444.47 from $1,190,415.37 in the base scenario to $545,970.90.

Projected Benefit of Strategy

Projected Net Investment Position

• Under the projected strategy, over 10 years of projections there is a projected decrease in your net investment position of $22,100.47 ($-17,696.47 in today's dollars) from $1,675,170.35 to $1,653,069.88.

Strategy Overview

This strategy invests in line with the investment portfolio detailed in your VAS Investment Goal. Any available cashflow surplus will be invested utilising debt recycling to repay debt faster while simultaneously investing to grow your wealth.

1. Repaying Debt with Surplus Income:
   Surplus cashflow is first used to increase your loan repayments, focusing on non-deductible or partially deductible debts. This occurs as follows:
   • Debts with the highest after-tax interest rate are repaid first.
   • Non-tax-deductible debts are paid off first, followed by partially tax-deductible debts.
   • As the strategy prioritizes repaying non-tax-deductible debts, fully tax-deductible debts are kept on their current repayment schedule. Additionally, the income from the High-growth investment is not reinvested to increase the available cashflow.
2. Creating a Tax-Deductible Loan for Investments:
   If you have a mortgage that isn’t fully tax-deductible, we create a new loan (or split your existing loan) that can be drawn down for investment purposes:
   • The new loan will only be used for investing, ensuring the interest is fully tax-deductible and segregated from other non-deductible debt to make administering your tax easier.
   • The new loan is structured as interest-only, allowing more cashflow to pay off non-deductible debt faster.
3. Recycling Debt for Investments:
   As you repay the principal on your mortgage, the same amount is re-borrowed from the new investment loan and invested. This is called “debt recycling” because it reuses your debt for investing while reducing your original mortgage. For the purpose of projecting this scenario, this balance is assumed to be used to purchase investments, with 99% allocated to the partner in the higher tax bracket and 1% to the partner in the lower tax bracket. If both partners fall into the same tax bracket, the allocation is split evenly (50-50).
4. Using Your Surplus After Debts Are Paid Off:
   Once all non-deductible and partially deductible debts are repaid, surplus cashflow is directed based on your borrowing capacity and loan-to-value ratio (LVR):
   1. If you have an offset account and have the borrowing capacity to increase your lending without additional costs (such as lenders mortgage insurance), your surplus is first directed to the offset account. An equal amount is then drawn down from the associated investment loan and invested in the High-growth investment.
      • While not essential to the strategy, this approach provides flexibility. You can access the funds in the offset account for large personal expenses, such as buying a car, upgrading your home, or purchasing a holiday home, while minimizing the need for non-deductible debt.
      • An alternative to this approach, if you'd prefer to eliminate all interest expenses, is to direct all surplus cashflow into the offset account. Once the investment loan is fully offset, you could then begin investing further using the same methodology. While this may not be financially optimal if the expected return from investments exceeds the interest rate, it offers a path to debt elimination for those who prioritize being debt-free.
   2. If no offset account is available, surplus cashflow is directly invested in the High-growth investment.

Gearing Considerations

Gearing, or borrowing to invest, is typically suitable for investors with a high risk tolerance, a long-term investment horizon, and the ability to manage borrowing costs. While gearing increases the amount available for investment and can amplify returns when investment gains exceed borrowing costs, it also magnifies losses if the investment underperforms.

Debt Recycling has several benefits compared to gearing with through a margin lending facility. As the loan is a mortgage secured by a property rather than a margin loan secured by the underlying investments there is no risk of a margin call. A mortgage will also more often than not have a lower interest rate than a margin loan.

Ownership Considerations

You should also evaluate whether a different ownership structure might provide a more optimal outcome. Ownership arrangements can significantly impact the tax treatment of investment earnings, estate planning, and asset protection. Other structures, such as trusts or holding companies, may provide advantages in estate planning and asset protection as well as offer additional tax planning opportunities. These options can facilitate income splitting and/or reducing tax on earnings. However, they often come with greater complexity and setup costs, so it’s important to weigh the potential benefits against these factors to ensure the structure provides meaningful advantages. Additionally, if the investments are geared, these structures may be less suitable, as the deductions for interest expenses are typically limited to the income within the trust or company, preventing you from offsetting the costs against your personal income.

VAS - Vanguard Australian Shares Index Etf

Mortgage - New PPR: Australia Bank Mortgage Debt Recycling Balance

Mortgage - New PPR: Australia Bank Mortgage

By increasing your repayments to the amount projected it is projected that:

• This will not be repaid during the projected period compared to 27 years in the base scenario
• The total interest paid over the life of the loan will be reduced by $662,074.92 from $1,190,415.37 in the base scenario to $528,340.45.

Projected Benefit of Strategy

Projected Net Investment Position

• Under the projected strategy, over 10 years of projections there is a projected increase in your net investment position of $146,629.18 ($117,410.15 in today's dollars) from $1,675,170.35 to $1,821,799.53.