Hi,
I am after some advice as to where we should focus placing our money for the best returns.
My husband and I are mid-late 30s with 2 young children.
We own a PPOR in Sydney bought 3 yrs ago (P&I loan; $580K remaining; house valued at $800K+). We own one IP in Canberra bought 8 years ago (which I lived in for 4 yrs as my PPOR before moving to Sydney and renting it out as an IP in 2011) (IO loan; $315K remaining; house valued at $450K).
Both loans have deposit offset accounts, with all of our savings (approx $50K) sitting in the deposit offset account against our PPOR (there is $5K as ’emergency’ money sitting in the deposit offset account against the IP loan). We are also paying above the minimum repayment for our PPOR loan but only making the IO payments on the IP loan.Should we:
1) Focus on putting all our savings into the deposit offset account associated with our PPOR loan and keep IP loan as IO as we are currently doing?
2) Given the banks move to increase interest rates for IO IP loans recently, should we convert our IO loan for the IP to P&I so we can keep our lower interest rate i.e. The same rate I am getting for the PPOR loan (and pay approx $500 per month more for the P&I repayment compared to IO amount i.e. $500 less that will be sitting in our deposit offset account but will be chipping away at the principal on the IP loan) or cop the 0.29% hike on our IO loan rate and still focus any additional funds in the deposit offset account associated with our PPOR loan?
3) Keep our mortgage situation as is (IO IP loan and P&I PPOR loan with all savings sitting against it) and focus any ‘surplus’ funds into salary sacrificed super contributions, again resulting in less money sitting in our deposit offset account but having tax benefits especially for the primary income earner who’s name the IP is in($130K per year salary)?Our goal would be to purchase another IP in the next few years but we also want to focus on reducing the debt against our PPOR and ensuring we are making the best tax decisions in terms of tax breaks from IP and Super.
I appreciate any advice you could offer.
Hi Jodie
Have you considered looking at purchasing a property inside your self managed super fund?
We recommend all of our forum clients look to have a mix of assets held both in their personal names as well as in Super.
Cheers
Yours in Finance
0-40 properties in a decade. Ask me how.Richard Taylor | Australia's leading private lender
Hi Richard,
I don’t have a self managed super fund….I am with First State Super. Is purchasing property with Super funds something only possible with a self managed super fund?
Hi Jodie,
The advice I’ve always been given is to focus on reducing your non-deductible debt first, so I’d even have the $5k emergency money for your IP offsetting your PPOR.
As far as whether to switch your IP to P&I to keep the lower rate is switching lenders to keep a low interest rate an option? I’m certainly not the person to give advice on that, there are brokers on here that can give advice in regards to that, but if you could find a lender that wasn’t increasing their interest rates for investment lending could it be worth paying the fees to switch? We’re with ING Direct and as far as I’m aware they’re not changing their rates for investment lending. I’m not suggesting switching to them but it says to me there must be other lenders out there keeping investment lending rates as they are. We’re paying the same interest rate (4.13% for our PPOR and IPs).
In regards to purchasing assets through super I’d like to hear more of peoples’ opinions on that. My partner and I are at the same stage in life as you are (age, kids, debt etc), I like the idea of it and have recently been making enquiries about starting my own SMSF, but what I’d like to know is given we still have 30-odd years of work before we get to retirement age, how does purchasing property/assets through super now benefit us in the short term if buying more property in the next few years is a goal, to reduce debt on our PPOR in the medium to longer term.
cheers
PeteJust focus on saving into the PPOR offset.
move the $5k to the PPOR offset too.Paying down an IP loan while you have non deductible debt will mean you are giving up tax benefits while paying more interest which you cannot deduct.
Separately look at super too.
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.
