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Ben Kingsley Blog post by Ben Kingsley

Loan Flexibility is an Important Consideration

It is fair to say that even the best laid out plans can sometime not eventuate. When it comes to deciding on a mortgage the flexibility of the loan product is something you should pay serious attention to, as best illustrated by the couple of examples below.

Investing: One of the best ways to get ahead in your wealth creation endeavours is to use equity to control a greater asset base. Put simply if you controlled an asset worth $300,000 and it was costing you $12,000 to hold but it was growing in value around $21,000 – $25,000 per year then, you might think it was a very good use of your cash. When it comes to the lending side of things a loan product best suited for this type of lending would be one that allows you to have multiple loan splits whereby you can separate your owner occupier debt from your investment debt. As your investment debt would be tax deductable, having it separated allows you to easily account for any interest cost come tax time. If you don’t have it separated then the Tax man might argue that money being paid into a loan that has both personal and investment debt doesn’t allow for the true deduction on the investment portion, as is the case when one uses a line of credit product and mixes personal and investment debt together.

Future Plans: When you take out a loan product you need to understand what event into the future may impact on your loan in both a negative and positive way. A loan product that has a repayment holiday as an example as part of its flexible features might be attractive to a borrower in the event they become pregnant and need access to additional cash flow during those early months the when the mother might be off work. Or a borrower might experience a financial windfall, such as an inheritance. From a loan features point of view have the ability to park this money into an offset account or redraw allows for future flexibility in assisting in one’s activities down the track

There are lots of examples where loan flexibility and the smart structuring of your finance will save or make you money in the long run. The challenge for most borrowers is in knowing what it means for them when they look at loan product features. An experienced mortgage broker or finance advisor should be asking you the meaningful questions that will identify the benefits of knowing more about these flexible features of the loans they are looking at for you. And the way to tell the good advisors from the bad ones is by how much time they allocate in learning about your situation as opposed to how quickly they try to sell you a loan.

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