First of all, long time reader, first time poster
My current situation:
26 years old, 100k income. Lives at home with parents.
Purchased first investment property approximately 1.5 years ago, currently worth $460k and I owe $370k. Loan set up P&I with offset account. Repayments 2500/month. Rent approximately 1900/month.
Looking at purchasing another early next year with my partner (80k income) and continuing to live at home (rent free) for at-least another 4 – 5 years (kids after 30) with the aim of purchasing another 3 – 4 together before marriage/baby making time.
My question is, given I have no PPOR and only purchasing investment properties for the next couple of years, should I be looking at setting up P & I on some of the loans and paying down debt while I can, or leaving loans interest only and purchasing more property?
Thanks for your advice guys.
Hi Nick
Welcome to the forum and i hope you enjoy your time with us.
I never have a problem with a client wanting to pay down their investment loan and in fact have personally spent the last 12 years paying down all of mine.
In saying this you must realise the whilst you have no PPOR at the moment that is not to say this will not change in the future.
Last thing you want to do is pay down $100K of deductible investment debt only to find that you decide to buy a PPOR and need the 100K as deposit.
Whilst it maybe possible to get the funds back the interest deductibility will lost and this could be an expensive mistake going forward.
If you were a client of mine i would be strongly suggest to you that you looked at IO with an offset account on 1 loan and then had the others as basic rate interest only loans.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Hi Nicky
Are you planning on purchasing a PPOR at some point?
If so, I'd preserve the principle on each IP loan instead of paying it down.
Like Richard said, link an offset account against one and make all of your extra repayments into the offset instead.
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
Thanks for your comments guys,
I guess I have had it ingrained in me for so long that debt is bad and needs to be paid down asap so its hard to reverse that trend.
Richard, what did you mean by this:
If you were a client of mine i would be strongly suggest to you that you looked at IO with an offset account on 1 loan and then had the others as basic rate interest only loans.
Why wouldn't I have a single offset account linked to all of them?
Jamie to answer your question, within the next 10 years i do see myself purchasing a PPOR, however the plan is to go for another 6 – 7 years without making a purchase.
Hi Nicky
No need to have an offset linked to each loan – you only need to be offsetting one loan. You'd only need two if you managed to offset an entire loan – and had surplus cash to place elsewhere.
If you're planning on owning a PPOR at some point than best to preserve your current IP debt and utlise the offset against an interest only loan instead of paying down the principle.
You don't want to spend the next 6 years paying down a large chunk of deductible IP debt and then take on a non-deductible PPOR debt.
I'm not saying you shouldn't make an effort to make extra repayments – just make them into an offset account rather than into the loan itself. That way, when you do buy a PPOR, you can move those funds from your offset account onto your new PPOR loan – which effectively boosts your deductible debt whilst lowering your non-deductible debt.
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
it may be better in long run not to pay down investment debt while not yet having a main residence. you can acheive same interest savings with a 100% offset account and potentially save yourself thousands in tax down the track.
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
You must be logged in to reply to this topic. If you don't have an account, you can register here.
