Peter and Jenny own their home on the Gold Coast. With the help of an inheritance from
Question:
Peter and Jenny own their home on the Gold Coast. With the help of an inheritance from Peter's father they paid $1.2 million for it in 2019 which to their horror was recently valued at only $800,000. They have a $600,000 line of credit mortgage secured against the home. It has a current outstanding debit balance of $575,000. Interest only is paid monthly at 6.5% but this will mature in July 2023, and they will be subject to the current variable interest rates. This line of credit was established in 2019 when lending was less restrictive and based on a maximum loan to value ratio of 80%. They have been subject to increased mortgage repayments resulting from a succession of Reserve Bank increases over the past two years which they had not anticipated.
Additional Information:
- They have two upmarket cars (Peter's car is worth $75,000 and Jenny's car is worth $50,000). On the 1/12/2019 Peter funded his car purchase with a seven-year $50,000 personal loan from the ANZ Bank at 6.5% interest. He has been paying $742.47 per month Principal and Interest which is included in their general expenses. There are no balloon payments or penalties if the loan is paid off prior to the seven-year period (30/11/2026)
- Their total income is $143,241 and they have a cash flow deficit of ($16,044)
Question:
They are starting to panic because of falling property values and cash flow pressures. They are looking to you for some options to create wealth and pay off their mortgage, as they would like to retire in 8 years and still have to support their daughter.
You should note that the interest payments in their Line of Credit Account are in addition to their general expenses.
South-Western Federal Taxation 2020 Comprehensive
ISBN: 9780357109144
43rd Edition
Authors: David M. Maloney, William A. Raabe, James C. Young, Annette Nellen, William H. Hoffman