Your top 16 money questions answered by an expert

We got Aussies from around the country to send in their mortgage, money and superannuation questions. Here's what Aussie finance guru Peter Switzer said in reply. 

Q. I’m a full-time employee earning $90K a year before tax. I salary sacrifice $17k yearly into my industry super fund. My super is at $250k and my wife has around $50k in her super. We have a mortgage of around $510k with fortnightly payments of $1700.00, with an interest rate at 4.49%. I’m 64 and plan to work until the mortgage is paid off. Our aim is to reduce the mortgage as soon as possible any suggestions? Bobby, Essendon, Vic.

Building up super or killing a mortgage is an issue that many of our clients ask us about and when we do the numbers the results are often close. The higher your tax rate the better it is to get as much as income as possible into super because the tax rate is 15%. If you want to stay in your home when you are say 74 and retired then you should pay off your house ASAP. However, if you would be happy to trade back to something smaller or to a less expensive locality then I’d build up my super via salary sacrifice. Next year the limit goes from $35k to $20k for salary sacrifice, so maybe your wife needs to bump her super via this technique. You could also cut your home loan interest rate, which would help. You are paying 4.49% but is this the comparison rate? Ask your lender as sometimes this can be higher than the advertised rate because of fees and charges. Switzer Home Loans are 3.89% and our advertised rate is the same as our comparison rate, so use that as a benchmark. By the way, the value of your home will probably rise pretty well over the next 10 years so that mortgage will become relatively smaller, and so if you intend to downsize in the future paying off the loan might be less important than getting as much as possible into super.

Also read: This is how many years it takes to save for a first-home deposit

Q. I’m thinking about buying an apartment in Brisbane to rent out. What do you think, as there have been some negative stories around lately? Charles, Tugan, QLD.

A. Be careful. One-bedroom apartments in the CBD are oversupplied and getting a tenant could be tricky. Quality apartments in other parts of Brisbane where there is big tenant demand will be a better bet and two-bedroom ones would be better for capital appreciation. This is a tough market and my experts say homes with backyards in great commuter suburbs and those with access to the water are in all likelihood better investments. Drive a hard bargain because there is pressure in that property market but I think Queensland is on the comeback trail so it could be a good play but make sure where you buy there is a tenant demand for the apartment you buy.

Q. Does this slowdown in the economy mean that interest rates are now going to fall next year? I was poised to fix my home loan rate but now I’m not sure. Lisa, Avoca, NSW.

A. Fixed rates have started to rise and that’s because since Donald Trump won the US election bond rates of interest or yields have risen on the belief that the US economy and maybe even the world economy will grow more quickly, inflation will edge up and so will interest rates. Fixed rates link in with bond rates but if we went into recession our fixed rates would fall. I don’t think we will go into recession and the December economic growth rate should prove that the September minus 0.5% result was a one-off event. Our banks should pause before raising fixed rates in the near future, but I think over 2017 they will rise. That’s my best guess and so if you see a good rate I wouldn’t gamble that the next move will be down.

Q. I’ve been asked to go guarantor on a home loan for my son and daughter-in-law and I’m worried about it, though I do want to help them. What’s your advice? Jane, Albert Park, VIC.

A lot of parents are faced with this dilemma as home prices go wild in places such as Sydney and Melbourne. It is a big step because if your son and daughter-in-law screw up, you will be responsible for the loan. If they are not reliable types I would say no. If they are hard working and very dependable then I would suggest you say that you want to help but there has to be a contract – formal or informal – that ensures that they behave professionally. In a sense, you are creating a business deal with them and so you have to be able to see that the loan is being paid each month. They need to tell you immediately if things are going wrong – job losses, marriage issues, spending problems, etc.

If they can offer you this kind of mature commitment then you just might reduce the worries of going guarantor, though be aware this is a risky play but I know why you want to do it. Good luck.

Also read: The real reason first-time buyers are being locked out the property market

Q. If my sons leave our self-managed super fund say to join an industry fund, would there be a capital gains tax issue? Clarence, Grafton, NSW.

A. When you sell shares in your self-managed super fund to get money to give to your sons so they can join another super fund, there could be a capital gains tax issue if you have made money on the shares you are selling. I think it stinks and if you are rolling from one fund to another it should be capital gains tax-free but that’s the law. You might need some advice to minimise the tax impact.

Q. I have a residential property I have been living in but I have been moved overseas by my work, so if I rent it out, will I have to inform my lender? Second, will I be hit by capital gains tax for renting it out?

A. As you are going overseas for work you can rent it out for six years without it giving rise to capital gain tax slugs. If you move back in and then have to go overseas again the six years restarts.

It would be a good idea to inform your lender but it might mean your interest rate could be raised a little. Lots of people don't inform their lender but you are supposed to. Also check that your insurance policies will be honoured if a tenant replaces you as the home occupier. If something goes wrong the insurer might have an out with the policy if they find out a tenant was living in the property. It always to pay to know what your obligations are when it comes to insurers – they can play hardball with the law to get out of paying!

Also read: 120 Aussie suburbs could be set for a price plunge

Q. I am finding it difficult to work nowadays. I’m 52 and owe $120,000 on my apartment but I have $540,000 in super. Can I access some of it to kill my mortgage repayments? Liz, Potts Point, NSW.

It is possible to secure a release of your super for the purposes of ‘mortgage assistance’, if it prevents a foreclosure of a mortgage on your principal place of residence. Similarly if the property was going to be sold from under you there would be a reason to apply to access your super before the usual age for release.

Before the Department of Human Services (DHS) gives the OK, a written statement must come from the lender explaining that:

• the payment is overdue, and

• if the person fails to pay the amount, the mortgagee (lender) will foreclose the mortgage on the person’s principal place of residence, or exercise its power of sale over the person’s principal place of residence.

The next step is that the DHS tells the super fund to release the money, but there are limits on how much. For any 12-month period, the amount released can’t be more than three months of repayments plus 12 months of interest on the outstanding balance of the loan.

You won’t get a release if you have potential problem. You have to be behind on your repayments and the bank has to be set to sell the place! It does not apply to investment properties or any shared-owned home, say with a child.

They’re the rules but I’d contact Centrelink and try every avenue to get what you want.

Q. What do you think of these credit card transfer deals where the interest rate is 0% for say a year? Billy, Bega, NSW.

A. If you have too much credit card debt and you are paying too much interest, I think they’re a good idea but when you transfer I’d recommend you try and pay off the debt before the honeymoon rate of 0% ends and the usual rate of interest kicks in. Make sure you know the future rate of interest and work out if you can pay off that debt before the higher rate starts. Go to the websites such as www.finder.com.au and www.ratecity.com.au to get a better credit card deal in your money life.

Q. My daughter has done well at uni and now has a good job and she has worked as well as saved for five years and I’d like to give her some good money-life advice. She lives at home and we all get along well, so what should I talk to her about? Lisa, Lane Cove, NSW.

A. Talk to her about her goals and then suggest she puts together a plan to make it happen. Get her to read websites like this one and mine – www.switzer.com.au – so she can become money-wise. She could look into buying a property that she might rent out now but later she could move into when her income permits it. Get her to talk to an accountant to see if her tax payments make it smart to look at an investment linked to some borrowing. Get her start thinking about how you build wealth and because she is smart a snowball of knowledge and confidence will start rolling and getting bigger, which will be paralleled by the building of her wealth.

Q. Does Donald Trump mean that interest rate cuts in Australia are over and should I fix my home loan rate? Tim, Coburg, VIC.

A. This is a hotly debated issue between economists and loan experts. I think the RBA wants to stop the cutting of the cash rate at the current 1.5% level. The money world thinks Trump will push growth in the US and as the stock market has been positive towards him, I suspect rate cuts are over unless something scary and unexpected happens. I interviewed John Flavell, the CEO of Mortgage Choice, on my 2UE radio show this week and he agreed that rate cuts are probably over. On whether to fix, he likes recommending that fixers should do part-fixed and part variable and I think longer fixes make more sense than shorter ones but make sure you know what the cost would be if you broke the loan.

Q. I’d like to buy an apartment inside my self-managed super fund and let my son rent it off me at a really low rent. Is this a good idea? Marcie, Albert Park, VIC.

A. It’s a great idea for your son and it’s a nice idea from you but it’s illegal. You can’t rent a residential property owned by your super fund to a related party. Also because you are meant to be using your super assets for your retirement you are supposed to get the best returns possible. It’s called the sole purpose test and you’d fail it if you charged a too low rent to a relative. Your super fund could penalised by the Tax Office, so I think if you want to help your son, do it outside of super.

Q. I have paid off my house and have an investment property and would have about $100,000 in my super fund. My age is 50 and I intend to work for 15 more years, what would you recommend I do? Josie, Gosford, NSW.

A. You are long on property and short on super.

I’d build this up by making sure you get the new maximum cap for concessional contributions, which as of next July will be $25,000 a year. Over 15 years you could get $375,000 into super which would be $475,000 with the existing $100,000 and so I can see it compounding to about $700,000 or more by your age of 65. You then would have a good balance of assets and the super money should give you about $50,000 a year and then you would have your rent money from the property which would leave you sitting pretty in retirement.

Q. I want to give my 21-year-old daughter some great wealth-building tips. She has finished uni and will start teaching next year. I’m not a good example but I never had a great influence in my life, so what should I say to her? Olivia, Petersham, NSW.

A. The fact you are asking this question shows you are a caring mum, so let me give you a few inspirational and educational ideas. Your daughter has to have the desire to succeed moneywise. Talk to her about life with and without money. Point to the opportunities with and without it and even make the point that being poor and always scraping to find money can make life unnecessarily hard. Talk about successful women like Janine Allis from Boost Juice, Elle Macpherson, Sally Pearson, Cathy Freeman and others such as Julia Gillard, Julie Bishop who had great goals and created successful lives for themselves. Tell her to believe in herself and to have big dreams and be committed to self-improvement and being different from the pack. She needs to think outside the square and do things like read this website and people like me who want to make young women like your daughter successful and wealthy. It’s all in the planning and the commitment and hanging around with the right company, as Gerry Harvey advised me years ago. She’s lucky to have a mum like you, which means she has had a great start but she has to have the desire to be exceptional. By the way, if she doesn’t have time or the inclination to be money smart then tell her to find a trustworthy adviser to help her get her money life right.

Q. With interest rates so low, why wouldn’t someone fix their interest rates for a long time? Alf, Prahran, Vic.

A. When you break a fixed rate loan there can be a fee. This tends to be big if you break it before the time is up on the fixed rate loan and you’ve locked in at say 7% and rates have fallen to 4%. When you lock in at 4% and you try to get out when rates are at 7%, the cost should be small because the bank can lend your money out at a higher rate. I suggest you should always ask about the breaking cost of a fixed rate loan. Another negative can be if you lock in and rates fall by a fair bit and that means you will be overpaying, but at current rates I would not think this would be a big issue. The final tricky issue is that you might borrow on the basis that it’s easy to pay off your fixed rate loan for three years at say 4% but when you end the term variable rates might be 6% and this could be a big financial kick in the butt. You have to be prepared for that kind of reality, so picking the time period can be a big issue.

Q. With these new limits of $1.6 million in super, I have two properties worth about $2 million, so how will I go about getting $400,000 out of my fund? Will I have to sell one? Lawrence, Kogarah, NSW.

A. Under the Government’s new super changes if you had $2 million in your super fund, $400,000 would have to be moved out of pension mode where the tax rate on your earnings is zero to accumulation mode where the tax would be 15%. However, you can’t sell a room or a garage to reduce the value of your assets in the fund, so you might have to sell one property and transfer $400,000 into accumulation mode. The fine point rules have not been announced but it looks very likely that they won’t make exceptions for property-holders inside a self-managed super fund.

Q. Is there a window for building up my super before the new super rules come in? I want to sell my house and buy a unit to retire into, so should I move sooner rather than later? Lisa, Avalon, NSW.

A. Right now if you sold a house and you wanted to roll some of the proceeds into your super fund you could put $180,000 for one year’s contribution and if the Government’s new super rules get passed by Parliament, then this limit goes down to $100,000. There is also a bring forward rule that lets you put three years worth of after-tax or non-concessional contributions into your fund in one go. So if you sold a house for a $1 million you could put three times $180,000 or $540,000 into super in one go before June 30, 2017. After that time it would be only $300,000. If you are married, then as a couple you could get $1,080,000 into super in one go rather than only $600,000. Anyone planning to sell a house or a business to build up their super should think about what I have explained.