I know there is a lot of these sort of posts lately. Sorry to bore you all, but just after some opinions to help me in my decision.
Have a IP with about 105K left to pay. Renting it for 210pw. Not going to sell it.
Was PPOR till we moved and now in mine town paying $15 week rent. Earning very high wage.
Loan currently isnt offset account, didnt require it before we moved. Dont want to refinance into offset account if I can help it as it is a pretty good loan at present.
Main question is that i have approx 50K cash in account I have been holding onto in case we wanted to by another IP. Thinking of just pumping that 50K off loan and getting that down ASAP considering the interest rates. If I do this and then want to redraw, it will have effects on tax?
If I want another IP do I really need to rely on this 50K anyway or am I better off borrowing the load for tax purposes etc.
thanks
Mark.If your loan allows you to make redraws, or there is an offset account attached to it, then I would throw the whole amount on the loan and decrease the debt, and you will be able to access it for another IP when the time is right.
If not, maybe pay $40k into the loan, and keep $10k in a high interest on-line account such as ING Maximiser. This will give you some funds to access in case of an emergency, or the hot water service blows up or something like that.
In my opinion, decreasing ALL debt is a good policy, whether it is tax deductible or not.
Of course; always decrease the non tax deductible debt first.
There are some who advocate never paying down property debt, but I don't agree; your LVR and cashflow are the critical factors in your financial health.
If you are earning a high wage as you say and paying little rent, you could probably easily save enough for another IP deposit in a year.
The only trouble with putting it on the loan is that you are paying down deductible debt. This is not a bad thing, but if you wanted to take the money out again for a person expense (eg new home loan), then the extra interest incurred will not be deductible (as the redraw will be new borrowings for personal use). ideally you should put it in an offset account.
But if you think you are never going to need that money for personal expenses, then paying into the loan maybe a good idea. You can always withdraw it later or use the property as security for the next investment property purchase.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Mark
Personally i would not be paying down the debt.
An offset account will give you the same interest saving benefits however will retain the deductible status of the interest as well as the immediate access for the funds should the needs arise.
Remember one day things may change and you might purchase another PPOR where you have to pay for the interest.
Having cash in hand for a deposit could be a considerable saving in the long run.A good mortgage broker should be able to assist you in the correct structure.
Richard Taylor | Australia's leading private lender
Mark
Personally i would not be paying down the debt.
An offset account will give you the same interest saving benefits however will retain the deductible status of the interest as well as the immediate access for the funds should the needs arise.
Remember one day things may change and you might purchase another PPOR where you have to pay for the interest.
Having cash in hand for a deposit could be a considerable saving in the long run.A good mortgage broker should be able to assist you in the correct structure.
Richard Taylor | Australia's leading private lender
Hi Mark,
you'll have to check your loan policy. Most variable rate products will allow you to 'park' your cash onto the loan with a full redraw in the future. This would be the cheapest way to go.(if not you might want to consider switching). It sounds like the IP has positive cash-flow, which is a great place to be. Depending on whether your IP loan is P&I or I.O the benefits will speak for them selves, not only would your monthly interest charges reduce, you'll be paying more off the principal if its P&I. If its not i'd consider switching to P&I to eliminate the debt.
Also be aware P&I loans are reducing loans. So whatever available funds you 'park' into there, over time the full amount wont be available for redraw because the loans have an amortising limit. This means the facility limit reduces hence reducing the amount you'll have available.To access the full funds in the future you might require a refinance.
My suggestion is do something rather than nothing, if your unsure which way to go put the $50k where its easily accessible in the future. But don't just leave it in a interest bearing account because you never get the same benefits as offsetting it on your mortgage.
regards,
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