Hi can others here tell me what they would do in this situation!
I want to purchase a new PPOR which will have a substantial non deductible debt on it. Should i try and pay it off as quickly as possible or just pay interest only. What are others thoughts on this. I will be living in this property for a few years at least 10years.
Do you have any other investments or property ?
yes currently ppor and 1 IP, want to purchase another IP or new PPOR and turn old ppor into IP.
pay off your owner occupied house asap, and build up equity, and then use these equity for investment property.
I personally would just use an IO loan and pay all spare cash into a 100% offset account. This will work out the same (if you can control your spending) as paying into the loan in terms of interest, but if you were to ever move out, you would have a high loan and therefore greater deductions than you would if you had paid the loan down.
However, if you build up a large amount in the offset and wish to use it as a deposit for the next investment property, you should then pay it into the loan (to reduce PPOR debt) and reborrow it (deductible).
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
Pardon my stupid question, but do you earn interest on the amount in the offset account (such as those savings account)? Or it's just there to reduce the amount of interest you pay on the loan?
Bacon as far as i am aware you don't earn interest because if you do, you will be paying tax as it is earned income from the bank. The interest earned will actually lower what interest you pay on the monthly balance of your Loan.
Yes, that is right, you don't actually earn interest – or are not paid interest, you just save interest on the loan.
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
Ahh… thank you. Terry, now I'm beginning to understand why you're advocating IO loan only if there's even a slightest change I'll convert it to an IP..
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