No mortgage strategy – #4 of the top 7 Critical Mistakes  (Ep.34)

How does an extra cool million $$ sound for your retirement?

Or how about a war chest that will get you through any battle life throws at you?

An effective Mortgage strategy can make this difference for you, but it is the least understood discipline of finance professionals.

Why is that, when for most people, it’s your largest expense? Ever.

In episode 34, we discuss “No mortgage strategy” – #4 of the top 7 Critical Mistakes.

Listen as David Johnston, Cate Bakos and Peter Koulizos take you through why mortgage strategy is vital to create wealth and protect your downside.

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Show notes

  • Why is mortgage strategy important? It’s only your largest expense, ever.  
  • So, why do we focus on rate, rather than advice? Essentially getting a mortgage is a free service, you pay for the service via the interest and mortgage fees you pay over the life of the loan. But because it is essentially ‘free’, we tend not to equate4 value to the advice or service you receive when setting it up.  
  • Redraw v offset – a common confusion. Although they work the same way to reduce your interest payable, using an offset account, does not impact your debt today or debt to the future. You need a sound understanding of this to have an effective mortgage strategy.  
  • If you have a home that won’t be your final home, you could be unravelling all your future tax benefits by every $ you put into the loan. You cannot get that back as a tax deduction in the future. That is thousands, tens of thousands of dollars that you could have claimed.  
  • Get it right the first time – unfortunately, you must get this right from the moment you purchase the property. You cannot get back what you’ve missed out on, you can only fix it going forward.  
  • If you didn’t catch all of that, you can go to our YouTube series – mortgage strategy 101. We draw these examples on a whiteboard – seeing is believing! 
  • Fund your tax-deductible expenses from redraw – not to be confused with the above! If your mortgage strategy is set up correctly, you can fund your deductible expenses from a loan and then claim tax deductions on the interest. 
  • To fix or not to fix? Redraw and offsets are not available for most fixed rate loans, which is why most people have some debt on a variable rate, even if they decide to fix.  
  • Risk management – the biggest risk (AND the biggest fear) for most people, is that they will not be able to pay their mortgage. Any decision that forces you to a sell property must be because you ran out of cash. Pay down your loan, via your offset account. Instead of committing every dollar to the mortgage which you may not be able to get back, you build up your war chest.  
  • Sometimes you need to backwards, to keep going forwards – if you’re thoughtful with your mortgage strategy, you can plan to make it through certain life events, like having kids, without needing to sell an asset.  
  • Has your mortgage professional spoken with you on how you are managing risk? What are your future plans? What goals do you want to achieve? How you will preserve future tax deductions? How you can keep an existing property when you upgrade? About setting up an effective money management system that interacts with your mortgages? Made sure that you are using offsets correctly? The last piece of the puzzle is selecting a lender and rate, not the first. 
  • YOLO – don’t give up your dreams because of your commitments, if you talk to the right people, you can figure out a way to achieve them without risking the family home.  
  • Selling a property too soon, our 7th and last critical mistake: if you can get your mortgage strategy right, you can avoid critical mistake number 7. The Property Planner, Buyer and Professor have all sold properties they didn’t need to and regret it. This can impact your bottom line by millions at retirement.   
  • Money management – one of the five Mortgage Strategies. A money management system is how your day to day banking interacts with expenditure and your mortgages.  
  • Basic v bells and whistles – the basic loan, the lowest rate available. Is it right for you? if you only own one property and only ever hope to own one, then this may be an option for you. But even then, you miss out on the other benefits of mortgage strategy, flexibility and risk management in planning to have a family or any other life events. Small difference in interest rates and suitable for people who like to find mortgages themselves, with spare time and only plan to own one property.  

David Johnston – The Property Planner’s Golden nugget:  Your mortgage and banking strategy will have a profound impact on your cash flow and your financial, property and investment opportunities. 

If managed well, it can allow acquisition of assets, superior money management and a stable financial situation. If paid scant attention and you get it wrong, the cost of selling assets, lost tax deductions, an inability to accumulate assets, poor money management, increased interest costs and stress levels can be astronomical. 

Determining your mortgage strategy should therefore be priority one. You can always access a great rate after you determine your mortgage strategy, but not every lender will be able to accommodate the strategy that is right for you. And not every person you work with is an expert in mortgage strategy. In fact, most are not. 

All mortgage brokers and lenders can access the same rates. There will always be a new lowest rate, and it is not practical to refinance weekly, monthly or even yearly. 

It is also impractical to develop a mortgage strategy yourself as it takes years for an experienced mortgage broker to master the skill of mortgage strategy, and they are doing the job full-time. Whereas it takes no mortgage experience to know that 3.8 per cent is lower than 3.81 per cent. 

Get your mortgage strategy right first and then select the lender and interest rate.  

Peter Koulizos – The Property Professor’s Golden nugget: Offset account is greatest invention of banking and finance since sliced bread.  

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By |2020-02-19T13:23:28+11:00February 18th, 2020|
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