The Sydney Morning Herald from Sydney, New South Wales, Australia • Page 38

Wednesday, May 31, 1989 37 The Sydney Morning Herald New tax-effective loan TTDue peoiDs 0Dln)SUn)sDlnl: IMg Neither a horrower nor a lender be unless you have researched the venture thoroughly beforehand, writes CATHERINE ARMITAGE. While this rate has shown itself to be much less stable in the era of financial deregulation than in the past, it is still tending to stay well below other lending rates. However, there are a couple of drawbacks to the FlexiPlus mortgage. One is the fact the minimum credit line is $75,000, while a second is a $250 annual fee, which adds 0.25 percentage points to the loan rate for a $100,000 mortgage. Despite this, it should have some appeal for people who want to combine all their finances into one account, since the loan also operates as a cheque account and a tax-effective savings facility.

As well, it can be accessed through automatic teller machines. The main warning is that, as with all these products, it is important they be used mainly to finance investments rather than consumption. Going on a spending spree using this sort of mortgage is a sure-fire way to end up squandering the equity you have built up in your home. PETER FREEMAN Other deposit rates Bank and building society passbooks 3.75-6 3-yrfmcodebs 13.7-15.0 Cash mgt trusts 1 5.08-1 6.32 Common funds 15.29-16.65 Five-year govt sec no trades FINANCE company rates apply to debentures which pay interest quarterly and which are issued by companies associated with a major bank. The rate for government securities is the yield to redemption.

WHAT YOU PAY Illustration by ALAN MOIR HE bad interest-rate news for borrowers continues to pour forth with about the only hope of any improvement somewhat ironically coming in the form of predictions that high rates are likely to trigger a major economic downturn and so an eventual rate slide. But whatever the interest-rate outlook, the latest increases haven't deterred the National Australia Bank from launching a new, tax-effective lending product known as FlexiPlus. This follows the release early last month of Westpac's Equity Access mortgage which, in turn, was a response to the string a tax-effective mortgages introduced by smaller rivals Citibank's Mortgage Power, Chase AMP's Capitalize the MLC's Equity Credit mortgage and Bank of New Zealand's Smarter Mortgage. Probably the most attractive aspect of the National's FlexiPlus Mortgage is the fact the interest rate has been fixed at one percentage point above the home loan rate. WHAT YOU GET Statement savings accounts For $1,000 deposit: Banks 8-9 Building societies n.

appl. Credit unions 6-8 For $5,000 deposit: Banks Building societies n. appl. Credit unions 8-9 Savings investment accounts For $1,000 deposit: Banks 6-12 Building societies 7-8 Credit unions For $5,000 deposit: Banks 8-16 Building societies 9.5-1 1 Credit unions STATEMENT savings accounts pay interest on the minimum monthly balance and the money is available at call. Savings investment accounts pay interest on a minimum daily balance and are generally at call but notice of withdrawal varies.

interest costs of the loan for the first year from Beneficial Finance Corporation, the finance company subsidiary of the State Bank of South Australia. With very little capital of their own, though, the three sought others to act as guarantors on the $564,000 loan. Socrates Karavas persuaded his mother and father to put up their home at Brighton Le Sands as security, as well as properties at Fairfield and Redfern which they had acquired over the 30 years since emigrating from Greece. Similarly, Christos Stefoulis persuaded his parents, who emigrated from Greece around the same time, to put up their home at Campsie and another property at Mayfield. Mr Adams meanwhile coaxed his father, who suffered chronic health problems, to mortgage his fiat at Dolls Point.

Mr Adams also persuaded Mr and Mrs Russell Williams, a couple with whom he had previously had business dealings, to do likewise with their home at Russell Lea. Mr Adams's family home at Epping was also mortgaged for the loan, as was a rental property at Hunters Hill which he jointly-owned with Socrates Karavas. The nine properties were valued altogether at some were already fully paid for and others had mortgages outstanding. On top of this, all those who had put up their assets stood as guarantors for the principal sum of the loan, so that in the event of default they were each personally liable for $564,000 plus interest. TRAGIC tale which emerged recently from the NSW jJkA Supreme Court provides a timely reminder that ignorance or neglect of the oft-stated golden rules of borrowing has potentially catastrophic consequences.

In this case, four families stood to lose their homes and their life savings because they were guarantors for a loan which the borrowers could not afford. Fortunately, the law can invalidate or vary a contract which is deemed to be unjust, as Justice Giles decided in this instance. In early 1985, Socrates Karavas, a 25-year-old arts graduate with a travel agent's licence decided with his friend Christos Stefoulis, a 26-year-old aeronautical engineer, and business associate Mr Gregory Adams, a 36-year-old accountant who worked as manager of treasury operations for American Express, to buy Murray Valley Airlines, an airline business based in Mildura which had been recently placed in receivership. The asking price was To do so, they borrowed the total requirement principal cost, working capital and even the administrative and In particular, it had not been explained that the airline business was run at a loss and had been bought from a receiver, that it required expert management to turn it around and that it was being fully bought with borrowed money. Justice Giles found that Beneficial made the loan without sufficient information or adequate analysis of the airline business's viability or likely capacity to repay the loan.

The business and its assets would "inevitably" have less value than the purchase price being paid, he said. "It must have been apparent to Beneficial that there was at least doubt about whether the airline business would succeed and that if it did not, the third party mortgagors would inevitably be called upon. "In these circumstances, Beneficial's decision to provide the advance could not have been properly made on the basis of the capacity of the airline business to generate income, and can only have been made on the basis of the security offered." He ordered that the parents and Mr and Mrs Williams be relieved of liability to Beneficial, although they should repay the money which Beneficial had paid out to other banks on their prior, outstanding mortgages. Beneficial has not yet decided whether it will appeal the decision. However, the failed airline entrepreneurs Socrates Karavas, Christos Stefoulis and Gregory Adams were ordered to repay Beneficial's claim against them, including $611,000 each plus interest at 26 per cent from September 1987.

An unjust contract under the Contracts Review Act may be one which imposes conditions which' are unreasonably difficult to comply with or not necessary for the protection of the legitimate interests of any party or where any party was not reasonably able to protect their interests. In deciding whether a contract is unjust the judge considers a range of factors, including the relative economic circumstances, education or literacy of the parties and the extent (if any) to which the parties understood the provisions of the contract and their implications. In each case, the guarantors relied on the assurances of the borrowers that the airline business was a "good there were "no worries" and their properties would be "back None sought independent legal or financial advice. Then, late in 1986, the business failed. Its holding company went into liquidation.

Soon afterwards, Beneficial commenced court action for possession of the properties and for $611,000 from the three principal borrowers, as well as Mr and Mrs Karavas. In court, the families fought to keep their properties under the Contracts Review Act, which can invalidate or vary the conditions of any loan which is found to be harsh, unconscionable or oppressive. In this case, Justice Giles ruled that the contracts with the parents (Mr and Mrs Karavas, Mr and Mrs Stefoulis and Mr Adams) and Mr and Mrs Williams were unjust, on the basis that they would not have made their properties available had they gained a true appreciation of the extent of the risk they were taking. 15.75-17.5 16.0 15.5-16.5 Home loan Banks Building soc Credit unions Personal loan Banks Building soc Credit unions Credit cards Banks Building soc Credit unions 17- 23 18- 20 18.6-21 17.5-23.4 19- 20 19-21 ANSWERS NOELWHITTAKER rfemam rMMMri'if it 1 rift- RETIRINGOR LEAVING EMPLOYMENT? YOURS FREE "ROLLOVERS MADE SIMPLE" This pamphlet is designed to explain the latest laws and rules relating to a recipient of an Eligible Termination Payment (known as an ETP). If I had started my own Super scheme this time last year, I'd be worth around $30,000 Perpetuus At Cell Common Fund.

Average yield for 7 days to 29589 15.68 24 hours notice required. Perpetuus High Income Approved Deposit Fund. Average yield after tax for 7 days to 29589 Perpetual's Mortgage Fund. Average yield for 7 days to Average yield for 7 days 29589 Please send me: Rollovers Made Simple Research on: Approved Deposit Fund (ADFs) Deferred Annuities (DA's) iijuiuL.iJiiiuu.u ml jl iiiiimmwnr QUESTION: I am nearly 60, have no dependents and will earn S120.000 a year for the next few years. I lease a car and owe $130,000 on a SI 75,000 investment unit.

My own home and beach house are worth a total of $1 million and I have a long-term superannuation policy worth $350,000 to which I no longer contribute. I may seem well-off but I have an illness which means I am unlikely to live for more than five to 10 years at best. How should I best use my assets, particularly my superannuation, to support me if I am forced out of work in the near future? Should I use my superannuation funds to buy more real estate? I live frugally. ANSWER: A person in your situation should not be contemplating the purchase of more real estate. The bulk of your assets are already in this area and as your health deteriorates you will need flexibility in your investments.

You will also want to be free from the worries of managing properties. In view of your expected short working life, I believe you should be forgetting the so-called "joys" of negative gearing and reducing the debt on your investment unit till the net income covers the interest. This will ensure you will not have to find funds for this during your retirement. Once break-even point is reached, re-finance it on a fixed interest, interest only basis. Then it should not be a worry to you.

Once you do stop work, have a licensed, professional financial planner compare the options of rolling over your superannuation or cashing it in and investing it. The tax should be low because of your pre-1983 service. It is likely the best investment for you will be a five-year money-back annuity. This would provide a substantial regular income stream with return of your capital in five years. The likely increase in value of your unit should compensate for the loss in purchasing power of the annuity money.

Noel Whittaker is a Brisbane-based independent investment adviser. If you have any questions for him. write to ANSWERS, c- Monev. The Svdney Morning Herald, PO Box 506, Sydney. 200 J.

more when I retire. It all seemed too difficult' 99 Name: Address: duesburys financial Services Pty Limited AMM6H OF SPICtR OOPENHEIM INTERNATIONAL 9TH FLOOR 52 PHILLIP ST SYDNEY TELEPHONE: 250 9625 Pcode: Phone: Perpetual Trustees INTEGRATED FINANCIAL SERVICES. Telephone toll free 008 Oil 022 PT79 245 -A I "GIO made it simple, quick and painless, so I did it this year." "When I started working on my own last year, I actually went as far as seeing a broker about Super. But it all seemed so complicated that I gave up. "Then a riend told me that he'd done his with GIO most brokers won tell you alxjut GIO because GIO doesn't pay brokers commission.

He convinced me that one extra year can make a huge difference to retirement benefits not to mention tax! That's when I phoned GIO. "Whv do I recommend GIO? Because their P.A. AT CALL. experts tell it the way I understand it. I know more about investment funds now and I've got a good, balanced portfolio.

"I'm kept informed and I can change my portfolio or vary my contributions at any time. GIO has access to all types of investments and there are no hidden charges. "I'm glad I got GIO to sort it all out for me this year because now I'm looking forward to a nice, big lump Emm The effective annual yield is i7.55-o. Interest iscalcuUted daily and paidcjuarterly. The minimum initial deposit is There are no fees or commissions.

Fixed term rates also available. Call now (02)252 2700.T0II free (008) 22i 915. sum when I retire." i mrniW-MMr i mm iftMtiMiMMMMMMMiMiMiiMiia irir frrrii flit 3 For obligation-free information and straightforward AIDC 1" AustraJUn Industry Development Corporation. I expert advice on GIO Personal Superannuation I phone 228 1988 or complete this coupon today. I Send to: Fret-post 8001, Sydney, NSW 2000.

Postage free in Australia. I I want to be worth by the time I retire. Tell me how I can achieve it. I Please tick your age bracket Under 30 31-i0 f.ZHl-55 I I Over SS Occupation A.R.A.M INVESTMENT SERVICES Well known finance commentator and author of best seller 'Money Matters' MrMrsMs Is now the time to invest in debentures at 17? A simple, certain and secured investment with the interest rate guaranteed. Terms of one year at 17 or three years at 16 are available.

Minimum investment $10,000. Interest paid annually. Applications will proceed only on the form referred to in Prospectus 71B, with rates effective from May 15, 1989, copies of which are available from: NATIONAL AUSTRALIA BANK BRANCHES STOCK BROKERS Licenced investment adviser Address Postcode PHONE: 228 1988 Phone (Home), CREADEPT2'SMM3! 2J WORRIED about your financial security? CONCERNED to maximise the mileage from your savings dollar? CONFUSED by tax changes, social security -entitlements and range of competitive products? We offer pnrfettienal advice and formulate strategies, tailored to Mhrttual needs tr retirement planning. We are fee based and, where applicable, refund of commissions negotiable. Phone (02)2351024 10th Fl.

Carlton Centre, 55-63 Elizabeth St Sydney. 2000 CusSom Credit CoiporstBon Limited Incorporated NSW.