Mortgagenet Director Kieran Trass believes a common mistake that property investors make is to have all mortgages and security properties with one lender, while another is to mix salaried cashflow with tax deductible debt in a revolving credit account.
Trass consider that, based on actual case studies, there are seven common mistakes that property investors make with their mortgages. As well as the two above, he lists:
-
Not maximising the opportunity to raise tax deductible debt to replace non-deductible debt
-
Paying principal and interest on tax deductible debt, while repaying any debt that isn't deductible
-
Paying principal and interest on all debt
-
Having all mortgage debt on a floating rate; and
-
Having all mortgage debt on a fixed rate.
So why does he think it's a mistake just to deal with one mortgage lender? Among the points that Trass makes, he says that if you have several bank/non-bank relationships you can have more choice of products to suit specific circumstances as well as the ability (in some cases) to negotiate for the best price with the best products.
Trass says you may also have the "luck" to be with the right bank when one of them decides to loosen up on their criteria to attract more of your business, plus you'll also be able to access special offers made to clients of each bank.
As for mixing salaried cashflow with tax deductible debt in a revolving credit account, Trass says it's critical to consider the potential tax implications..."and I can't reiterate enough the importance of seeking professional advice for a solution to suit your specific circumstances".
"For example, you may be aware that any repayment of tax deductible debt (over and above any interest cost) is considered a permanent principal reduction.
"So if I have tax deductible debt (ie, funds used to purchase investment property) and I am using rental income through a revolving credit account and I also pay my personal expenses from that account, then the problem is that every time I pay personal expenses from my revolving credit account I am re-defining the purpose of the amount of funds I spend.
"The definition of the purpose of the funds (which I am effectively re-drawing as new loan principal) will obviously not be for the purposes of investment but for personal consumption (so therefore creating non-deductible debt)."
Trass is adding articles to the Mortgagenet website this week relevant to each of the mistakes that he identifies.
h
