Secured loan

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What should be entered as a Secured loan

  • The following should be added as a Secured Loan:
    • Home mortgages
    • Investment Property loans
    • Margin loans on shares (SDS only)
  • Secured Loans can be for directly owned assets or assets in an SMSF or Trust.
  • A secured loan can use the equity in a family home or property to fund the purchase of another asset.
  • (error) Do not enter under secured loans:
    • Car loans - Even if the car loan is secured by the car, this should be entered as an Unsecured loan

How to add a Secured loan

How to add existing loans

Existing loans should be added at the Current situation step with the asset that they financing:

  • If the asset is directly owned, then add the loan at the Current situation > Assets & Loans step.
  • If the asset is owned by an SMSF or Trust, then:
    • At the Super & Trusts step, add the SMSF or Trust
    • Add the asset
    • Add the secured loan

How to add new loans

New loans should be added at the Cash flows & goals step. First add the asset that the loan is financing, then click the +Add new loan financing (asset) button which is listed under any asset you can finance with a loan. Note that if you are adding a new loan to a new asset, you need to add the asset first, if you are adding a new loan to an existing asset, the asset will already be listed.

  • If the asset is directly owned, you can add the loan at the Review assets & loans step
  • If the asset is owned by an SMSF, you can add the loan at the Review super funds step
  • If the asset is owned by a Trust, you can add the loan at the Review Trusts step

You should also note that only some loan types are included in the websolve:

  • Existing loans secured by existing homes and properties
  • New loans financing new homes and properties

Loans that aren't included in the websolve (e.g. loans financing shares, new loans financing existing assets) will either be marked with   on the button or a message will appear when you add it.

Modelling options for Secured loan

These modelling options only apply to loans secured by directly owned assets (not ones owned by SMSFs or Trusts)

Defining how much is borrowed for a new investment property or family home

If a new loan is taken out, the amount that is borrowed will be calculated based on the following:

  • The Loan to Value Ratio (LVR) of the property
  • The projected value of the property at the time of purchase

For example, if the Loan to Value Ratio is given as 80% and the Value of the property at the time of purchase is $500,000, then the maximum amount that can be borrowed is $400,000 (i.e. $500,000 x 80%). The amount borrowed will not exceed the LVR, but it could be less if the individuals can afford to make a larger deposit and it would maximise their wealth under the given assumptions.

Controlling loan repayments On the Cashflows & Goals > Review Assets & Loans step, there are options for controlling loan repayments, so that the loan can be paid off earlier or later.
Paying off a loan early and keeping the same repayment every year

If you choose to pay off a loan by a particular year, Pathfinder will optimise repayments, so the repayments may vary from year to year. If you would like to spread the repayments evenly across a set number of years, then:

  • For a new loan:
    • Go to the Cash flows & Goals > Review Assets & loans step and find the loan
    • For the Remaining loan term field, change the value to when you would like to repay the loan
    • For the Repayment options field, choose ‘Make only minimum repayments’
  • For an existing loan:
    • Go to the Current situation step, and select the loan
      • For the Remaining loan term field, change the value to when you would like to repay the loan
    • Go to the Cash flows & Goals > Review Assets & loans step and find the loan:
      • For the Repayment options field, choose ‘Make only minimum repayments’
    • Solve the scenario, in the 'Solve events log', if you get a message saying that your loan term and minimum loan repayment do not match, check what the expected minimum repayment should be, and enter this value in the 'minimum repayment' field at the Current situation step.
  • In the results:
    • Pathfinder will calculate the required repayment to pay off the loan in time (it will report this as the ‘minimum repayment’)
    • The repayment will be the same for each year, except for:
      • The property purchase year (if applicable), because Pathfinder assumes the property is purchased on 1 January, so mortgage repayments are only applied for the second half of the financial year
      • The final loan repayment year, because the loan balance in the final year may be less than the loan repayment
Set tax status of loan repayments

By default, the tax status of the loan is determined by what asset it is secured by:

  • If it is secured by a family home, the repayments are not tax deductible (i.e. 'Percentage deductible' field is zero)
  • If it is secured by an investment property or other investment, the repayments will be tax deductible (i.e. 'Percentage deductible' field is 100)

You can override these defaults by editing the 'Percentage deductible' field on the Secured Loan.

Change the interest rate in future years

To model the interest rate as increasing or decreasing in future years:

  1. Add the loan
  2. For the Interest rate field open the Series builder by clicking ▼ to the right of the field
  3. In the Edit row field, in the year you want to change the interest rate, enter the new value.

For more, see How to increase or decrease a value in the series builder

Run a 'stress test' scenario with higher interest rates

If you would like to 'stress test' a scenario by checking what would happen if interest rates increased, you can:

  1. Copy the scenario (for more see How to make another scenario for comparison)
  2. In the copy of the scenario, go to the Cash flows & goals > Review assets & Loans step, and find the loan
  3. In the loan, edit the Change interest rate field
  4. Solve the new scenario

In the results:

  1. If there are no cash shortfalls, it is projected that the strategy can withstand the increased interest rate
  2. Be aware that the results in this scenario are calculated from scratch, so the action items may be very different from the original scenario.
Additional help topics

Results for Secured Loan

See Secured Loan (mortgage) results

Related items

Strategy Development Service (SDS) options

If the case includes complex analysis that you are not able to do in Pathfinder yourself, it may need to be submitted to the Optimo Financial SDS. Complexities include, but are not limited to:

  • Using a loan against a property as a line of credit
  • Margin loans on shares
  • Using equity in a home or property to fund shares or another expense (e.g home renovation) - This is controlled with the field called Use equity as a line of credit, however as this is a complex borrowing arrangement, it is recommended you submit the case to the Optimo Financial SDS if using this field does not give you the results you require.