Mr and Mrs Naidu have an investment property that they bought on 1st Jan, 2017 for $450,000, inclusive of freehold land valued at $100000. They have a home loan mortgage of $290,000 with ANZ. The interest rate for the home loan mortgage is 5.2%. They also have $150,000 in their savings account, currently earning them 0.25% interest at ANZ. Mrs Naidu has been requesting Mr Naidu to pay the $150,000 into the home loan account and bring the home loan account down by 3 $150,000. Mr Naidu is very reluctant to do this and indicates he likes to see money in his savings account. The investment property is earning a profit before tax of $12,000. The depreciation rate is 2.5% straight line and the property has an expected life of 30 years with a $650000 residual value. The tax rate is 20% on profit and 10% on capital gains. With the current COVID 19 pandemic and high level of uncertainty, inflation expected to increase Globally by 6% and the Fiji dollar expected to weaken against its trading partners, Mrs Naidu hears about you doing AF208 and comes to you for some advice.

• Advice Mrs Naidu if she her plans to pay down the home loan is appropriate. Please indicate the factors that need to considered in evaluating such a decision. Clearly state your assumptions.