Ask Noel

Ask Noel

Sydney Morning Herald
31 January 2007
NOEL WHITTAKER Noel Whittaker is a director of Whittaker Macnaught, a licensed dealer in securities.

I have a variable interest rate mortgage with a term of 30 years. I am paying interest at 7.72 per cent and make repayments of $240 a week. The balance of the loan is $123,900. I have recently had a substantial salary increase and can now afford to pay $740 a week. How much time and interest will I save over the life of the loan?

Your present repayments will have the loan paid off in 20 years with $118,000 paid in interest. If you increase the payments to $740 a week, the term will drop to five years and the interest would be just $19,000. My preferred option is to increase the payments by $350 a week, which will have the loan paid off in 10 years with $52,000 of interest. You do pay more interest, but you will have $390 a week you could invest, preferably to make interest payments on an investment loan. This should make you far more money than the extra interest you pay by having a 10-year term and not a five-year term.

In a recent column you mentioned changes to the Centrelink assets test this year. I've searched Centrelink's website and phoned its advice service but haven't been able to track down whether the changes apply to all part-pension beneficiaries or only to those with super investments. I don't have super but I do have shares and a spread of mutual funds. Will these changes apply to me? Where can I find the changes spelled out?

The main Centrelink changes are the relaxation in the assets test that will come into effect on September 20 and the loss, from that date, of the present concession to complying income streams whereby 50 per cent of the asset value is exempt. Complying income streams purchased after this date will not be exempt so anybody potentially affected should be taking advice as soon as possible.

I am a part pensioner and need to reduce my income from allocated pensions. I already receive the prescribed minimum. I understand that from July the yearly minimum will be changed and calculated differently. If so, please explain how this will be done.

The change will happen in July and you will have the option of staying with the present pension valuation factors (PVFs) or changing to the new percentage based factors. The minimum pension is currently calculated by your age-based PVF. The new minimum will be calculated on an age-based bracket, that is, those aged between 65 and 74 will be required to take 5 per cent of their allocated pension balance as a minimum.

This article is general in nature. Readers should always seek further advice before making financial decisions.

Write to Ask Noel, Money, GPO Box 2571, Qld 4000, or see moneymanager.smh.com.au/sitewide/askanexpert.html.

Would you please clarify the total amount that can be contributed to super as a tax deduction when the new rules come into effect later this year? Let's say for those under 50, the limit is $50,000. Does this amount include the employer's 9 per cent contribution? Also, there has been lot of talk of transferring non-super assets into super. Does the strategy work if the value of non-super assets entails capital gains tax in the hundreds of thousands?

For a person between 35 and 50, the maximum deductible contribution is $42,385. After June 30 this will increase to $50,000. The amount includes the employer's 9 per cent contribution. You have until June 30 to contribute up to $1 million to super in undeducted contributions which reduces to $150,000 a year from July 1. In certain cases you can reduce a capital gains tax liability by making a deductible contribution to super but this is not allowed if an employer is paying super for you.

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