Liar, Liar

Hi Scott,

We’re married, aged 28 and 31. We earn a combined income of $192k, have $44k in savings, and want to build our first home. We intend on borrowing $550k and getting a guarantor option to avoid Lenders Mortgage Insurance (LMI). Our initial plan was to pay off as much as we could as fast as we could. However, we had a meeting with our mortgage broker and he advised us to have it as an investment property for five years, and therefore get a bigger loan for the tax benefits. As we plan to start a family in about five years, we could make it our home at that time, and still have all the tax benefits along the way.

Prue

Hi Prue,

Let’s recreate that meeting with your mortgage broker, but without the bulldust. I’ll play the role of the broker, who I’ll base on Jim Carrey’s character in Liar Liar (that is, he has a magic spell cast on him and has to tell the truth for 24 hours):

Prue: “We’d like to own our first home. We’re thinking of a loan of around $550k.”

Broker: “Look, the more you borrow, the more commission I make. So how about you borrow more, so I can pay for my daughter’s braces?”

Prue: “Why would I want to do that?”

Broker: “Well, if you borrow more money, and turn it into a rental property for five years, you’ll be able to claim your losses against your taxable income. You’ll still be out of pocket, and I can’t imagine whoever you’ve roped into being your guarantor won’t be very happy about it either. But again, this isn’t about you, it’s about me.”

Prue: “Is there another way?”

Broker: “Well, you’re on decent money. If you save hard for another five years, you’ll get to a 20 per cent deposit, and you’ll be able to avoid a potentially disastrous family situation with your guarantor. Or else you’ll avoid paying $14,000 in LMI. But there’s no commission for me, so that is not what I would advise. Here is a photo of my daughter’s dentist. He drives a Mercedes.”

Scott