Client Profile
- Couple in their early 50s with two teenage children in private school
- Current home loan: $650,000 remaining, with 22 years left
- Home value: Approximately $2M
- Super balance: $600,000, with $30,000 in annual statutory super contributions
- Retirement goal: Work until 67 years old, then downsize to a 3-bedroom unit valued at approximately $1.2M
The Challenge: Managing School Fees While Preparing for Retirement
The couple reached out to refinance their mortgage to reduce their repayments for the next three years, while they pay $60,000 per year in private school fees. They knew their home loan interest rate was too high but hadn’t taken steps to change it.
Their key objectives were:
âś” Freeing up cash flow in the short term while they managed school fees and additional education costs (tutors, extracurricular activities, etc.)
âś” Ensuring their home loan was structured efficiently so that, after school fees ended, they could accelerate repayments and clear the loan before retirement
âś” Understanding how any changes made would impact as they moved towards retirement
After reviewing their financial situation and goals, we explored three refinancing options that would help them achieve the flexibility they needed.
Options Considered: Pros & Cons
| Option | Pros | Cons |
| 1. Refinance to a lower interest rate (same loan term) | – Immediate savings of $500 per month due to the lower interest rate
– Lower total interest paid over time – Loan balance at retirement: $305,000 (unchanged) |
– Clients were looking for greater short-term savings |
| 2. Refinance to a lower rate & extend loan term back to 30 years | – Monthly repayments reduced by $1,000 per month, creating more breathing room
– Easier cash flow management |
– Extending the loan term means paying more interest over the life of the loan
– Loan balance at retirement: $460,000 (higher than other options) |
| 3. Switch to Interest-Only (IO) for 3 years, then revert to Principal & Interest | – Largest short-term relief, reducing repayments by $1,500 per month
– Allows clients to cover school costs comfortably – After the IO period ends, they can increase repayments to clear the mortgage faster |
– Loan balance does not reduce during the Interest-Only period
– Higher repayments after IO term (but manageable) – Loan balance at retirement: $327,000 |
The Strategy: Finding the Best Solution for Their Goals
After discussing the pros and cons of each option, the couple chose Option 3 (Interest-Only for three years), as it provided the most short-term financial relief while still allowing them to meet their long-term goals.
They were comfortable with the fact that once school fees ended, their expenses would drop significantly, allowing them to accelerate their mortgage repayments and still pay off the loan before retirement.
To ensure they stayed on track, we mapped out what additional repayments they would need to make after the Interest-Only period:
???? To be mortgage-free by retirement, after the Interest-Only term they would need to pay an extra $1,500 per month (over and above the min required repayment). Given their expected financial position post-school fees, they felt this was realistic and achievable.
The Outcome: A Balanced Approach to Cash Flow & Retirement Security
With this strategy, the couple was able to:
âś… Reduce their monthly mortgage repayments by $1,500 during a financially demanding period
âś… Maintain flexibility to increase repayments once their children finished school
âś… Remain on track to clear the home loan before retirement
âś… Have the option to clear any residual debt using their super if needed
âś… Still proceed with their downsizing plan, which would free up approximately $700,000 for their retirement
By taking a holistic approach—not just looking at interest rates, but considering cash flow needs, long-term debt management, and retirement planning—we provided a tailored solution that allowed them to balance today’s challenges with tomorrow’s financial security.
Key Takeaway: The Right Advice Makes All the Difference
Without expert guidance, the couple may have simply refinanced to a lower interest rate and continued struggling to manage school fees. Instead, we helped them structure a plan that provided immediate financial relief while still keeping them on track for a debt-free retirement.
If you’re navigating a similar situation and need help structuring your mortgage to align with your short-term needs and long-term goals, get in touch today.
