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The three kinds of debt
Understanding the different types of debt can help you see why it pays to reduce your mortgage.
1. Bad debt is borrowing simply to spend, either on day-to-day things like clothes, or on things that lose value from the day you buy them, like cars and washing machines. This is the typical credit card or car or home appliance finance debt, and it is the worst kind of borrowing.
2. Good debt that can actually fuel personal wealth creation is when you borrow to buy an appreciating asset such as land, real estate or shares. Not only is the asset you buy likely to increase in value over time, but the interest you pay on the loan is tax deductible. So depending on your income and your tax bracket, you could end up borrowing for investment virtually tax-free.
3. Own home debt is when you borrow money to buy an appreciating asset, but are legally unable to claim any tax rebate on the interest you pay. Home mortgages fall into this category because home mortgage interest is not tax deductible. This is a great pity, because over the lifetime of the mortgage, you will probably pay more then twice the value of the original loan in interest. That is why should pay your mortgage off as soon as possible to reduce the total interest bill.
At Option, our primary concern is: how much money we can save you. That means we work extremely hard to make sure we find your best loan option, where the savings drastically outweigh the refinancing costs. We run a status check on your current home loan and let you know whether you could save by switching. If you do decide to switch, we’ll do all the legwork for you to make it as easy as possible.
We have created a series of guides to assist you to prepare for buying your first home, refinancing your current loans and becoming a property investor. The Option, Step by Step guides have been prepared to assist you to break through the clutter of information.
Mortgage Reduction Secrets
A mortgage is very likely the biggest financial commitment you will ever make. How many times have you heard someone say: ‘We don’t actually own our home – the bank does!’.
If you’re one of those people, you’ve probably thought about how incredible it would be not to have to say that any more. To own your home outright is a dream and a goal many of us have. Yet how many of us believe it’s something that will likely happen in the not-too-distant future?
We’re here to tell you that it is possible – and that you start working towards this goal from today. There are some major success factors which contribute to owning your own home sooner, and what could be better? Eliminating bad debt (that which isn’t providing any income or tax benefits) feels good – just ask anyone who’s finished paying off a blown-out post-trip credit card bill, a HECS debt or a car loan.
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