The Holy Grail of Home Ownership in Australia: The Tax Deductible Home Loan

Dec. 8, 2009 - PRLog -- The leading financial advisers at boutique financial planning firm Financial Spectrum in Sydney have developed a strategy designed to allow Australian home owners to make their home loan tax deductible.

In some parts of the United States, interest repayments for homeowners (not investors) are tax deductible.  This gives people who own their own homes some ammunition in the supply and demand housing battle against investors.  In Australia of course, our tax laws are the exact opposite.  Only investors are eligible to claim the interest on their mortgage repayments which some argue gives them an unfair advantage over people wanting to buy their own homes.

Financial planner at Financial Spectrum Simon Backman says: "We don't have a solution to fix the supply-demand imbalance that exists in the Australian housing market, nor a method to make home ownership cheaper.  What we do have, however, is a revolutionary new method to help Australians pay off their mortgage faster that they thought possible whilst building up an investment portfolio at the same time".

He explains that the strategy is not a simple one, but rather about using efficiency in how you approach, structure and manage your personal financial situation which will allow you to either pay off your home faster, or slower whilst enjoying a better cash flow along the way.  "This strategy is not as simple as ticking the right box, or by having a different home loan and it’s certainly not about non-compliance with the tax law".  The basic idea behind this strategy is to use a flexible structure and within the confines of the tax laws to build an investment portfolio that grows over time, harnessing the income from that portfolio to your benefit.  Gradually, your home loan becomes tax deductible and eventually the ATO is actually helping you to pay off your own home.

He does stress however that this strategy is not for everyone, "Just like anything good in life, it’s important to have a clearly laid out plan, and then execute your plan to perfection.  We can’t give you a step-by-step “how to” guide here because of course each person is going to have a different set of circumstances and therefore different needs.  There are no “out of the box” solutions—this strategy needs to be tailored to suit your needs".  

Simon does, however outline some minimum requirements as a starting point:
- a home (this could also be a unit or a townhouse, not just a house) and a mortgage on this home

- some equity in that property

- a mortgage over your home that has been set up approriately

- the right type of risk personality.  This strategy won't suit everyone

- willingness to succeed and the discipline to stick with the strategy over the long term

- a solid cash flow  (James suggests people without a solid cash flow should see a financial planner to work on this as a priority first)

- the right time horizon.  This strategy takes a while to build up momentum so it won't suit your if you're only looking for a short-term strategy.  If you've got a longer time frame to work with though it could save you hundreds of thousands and build a very strong investment portfolio.

Simon suggests people with an interest in the Tax Deductible Home Loan strategy make an appointment to see a financial adviser from Financial Spectrum to see whether this strategy could be suitable for their situation.  Financial Spectrum offer free one hour first meetings with a financial planner in the Sydney CBD.  To arrange an appointment, contact them on 02 8238 0888 or visit their website for more information about financial planning http://www.financialspectrum.com.au

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