Money Manager
Illawarra Mercury
Monday September 9, 2002
Q: We are a couple in our early 40s, with a home worth about $340,000 and no other debts. The mortgage we have at the moment is a standard home loan, variable, with $195,000 outstanding. Mortgage payments are made fortnightly.
We are thinking of refinancing to a line of credit arrangement to allow use of the equity in our home for home improvements and purchase of investment property in the next five years. Is this a good way to go, or should we concentrate on making additional payments on our existing mortgage to reduce it over a shorter period?
A: Many line of credit loans are overrated. Before you refinance check out the costs of doing so, the effective interest rate charged, and the fees. You may well find your existing loan can be tailored to do what you want without the cost of changing over.
Q: You mentioned recently ``endowment warrants". Can you please explain what they are and how/where you get them?
A: Endowment warrants are investment vehicles that enable you to effectively gear into blue chip shares without the possibility of margin calls, as each warrant has a built-in loan.
Endowment warrants give you no income as the dividends paid by the shares bought by the warrant are used to reduce the internal loan. Once the loan is paid off you have ownership to the underlying shares with no further payment to be made. They are especially ideal for superannuation funds and for children under 18. You can buy them through stockbrokers or financial advisers.
Q: I have two daughters aged eight and 11. They will soon receive a bequest of $1000 each. Could you please make some suggestion re: how to invest it?
A: Provided you can take a long-term view, a suitable investment may be insurance bonds, as they pay no income to adversely affect your tax and the proceeds are tax-free after 10 years. Your adviser will be able to give you full details, but I suggest you look at bonds that invest in Australian shares.
© 2002 Illawarra Mercury