Secured loan

On a secured loan, for the ‘Borrowing options’ field, if you choose the Robot button:

Then you are letting Pathfinder calculate the amount to borrow, with the maximum amount that can be borrowed being calculated based on the following:

• The Loan to Value Ratio (LVR) of the property; and

• 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.

Instead of letting Pathfinder calculate the borrowed amount (as above), you can specify an exact amount as a % of the property (up to the LVR) at the time of purchase.

• In the loan’s ‘Goals’ section, for ‘Borrowing options’, select ‘Set exact borrowings as % of financed asset’, which will display the field ‘Exact borrowings (as % of financed asset)’.

This allows you to borrow an amount that may not be mathematically optimal, but is more practical for some strategies: For example, you may want to borrow exactly 80%, despite having enough cash for an outright purchase. As well, if the property has multiple loans, you can specify your desired borrowings for each.

Also note:

• The amount you specify must keep within the LVR specified on the asset. You will be prompted by an error message if the values you enter are not consistent with each other.

• If you set Pathfinder to borrow an exact amount which is more than it calculates to be optimal, then you may also need to set the ‘Repayments options’ field to make repayments the way you expect.

On the Cashflows & Goals > Review Assets & Loans step, for each loan you will see a field called ‘Repayment options’ which will let you control loan repayments (e.g. only make minimum repayments, pay off loan by a particular 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

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.

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

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.

Specify an exact amount to borrow

You are able to set exact borrowings on loans used to purchase an Investment property or Family home.

However, for other situations, the amount of a loan obtained for investments, such as properties and shares/managed funds, is optimized based on the specified ‘LVR’ (max 100%) and ‘Maximum % of asset funded by loans’.

As such, Pathfinder can sometimes borrow less than you expected, if the individuals have other available funds they can use for the purchase.

• The name of the case

• The scenario(s) you want to apply it to

• The name of the loan

• The financial year(s) in which you want the borrowing to occur

• How much you want the borrowing to be

• If the amount is not in the first year, whether the borrowed amount is in present or actual values (and if in actual values, what the indexation should be)

Borrow against an existing asset for a line of credit or as a home equity loan (unless it’s for financing another property, home or shares/managed fund in the case)

If you are borrowing against a property to fund another property, home or shares/managed fund, this is possible for you to do yourself. Please see How to enter a loan that is secured by one asset and financing another asset (e.g. home equity loan)

If you want to borrowing against an existing asset to fund renovations or other lifestyle choice, then Pathfinder may not borrow enough or too much.

• The name of the case

• The scenario(s) you want to apply it to

• The loan details:

  • The name of the loan

  • The financial year(s) in which you want the borrowing to occur

  • How much you want the borrowing to be

  • If the amount is not in the first year, whether the borrowed amount is in present of actual values (and if in actual values, what the indexation should be, if it's not in the first year)

• If the loan is to fund a property renovation, you can also ask us to increase the property value. Please tell us:

  • The name of the property

  • The financial year the property will increase in value. This is usually the year after the renovation.

  • The new property value. Please make it clear whether the borrowed amount is in present or actual values (and if in actual values, what the indexation should be)

Refinance a loan

If you add a new loan that is secured by and financing an existing asset, Pathfinder may not borrow any funds against it.

You need to add:

1. All the details for the existing loan, including the year it is repaid (as the refinance year)

2. All the details for the new loan that it is possible to include in the interface.

Please email support and tell them:

• The name of the case

• The scenario(s) you want to apply it to

• The name of the old and new loans

• The year you want the refinancing to occur

Borrowing for shares (margin loans)

Pathfinder may borrow more or less than what you require, and it may not be possible for you to control the borrowing amount in the interface.

You need to add and fill in as much as you can:

• The shares

• The loan

Please tell support:

• The name of the case

• The name of the shares and loan

• Instructions for deposits to the shares - the amounts, and the years they should apply. You can request a maximum or ask us to optimise

• The instructions for the borrowing - some examples include that the amount borrowed should be 50% of the deposit amount, or that the loan balance cannot be more than 50% of the total shares balance, or a dollar amount

Debt recycling

• The case name

• The scenarios

• The names of the assets and loans in the strategy

• What you would like the debt recycling strategy to specifically look like in terms of deposits, borrowing and repayments. It helps us if you are specific, since there are a variety of debt recycling strategies.

It may be possible for you to model the strategy yourself, however if you require something like extra mortage repayments should be equal to the amount borrowed on a loan, and the amount borrowed should be invested in a managed fund, then this will require a background adjustment.

If the case has a lot of loans or assets to adjust, or there are complicated contraints.