hi everyone i’m afirst time user of this forum.
i was wondering if anyone could let me know if buying an invesment property with an intrest only loan could help in reducing the mortgage i have on my existing loan $260k and how . i’d like to think there is away most grateful cris[
]Hi Cris,
I’m no whizz at financials, so I just wanted to welcome you to the forum. [
]
I think the answer from memory is affirmative, it can be done, but I’m sure someone will respond to your post with more financial nouse then me (aren’t you lucky [])Cheers
Sooshie [
]There are no problems, only solutions
If you’re asking whether an interest only loan will help you pay off the mortgage quicker on your own home than having a principal and interest loan…the short answer is yes.
The extra cashflow you will have with an I.O. loan can allow you to divert that towards your own mortgage.
If you had a P&I loan on your IP, your repayments would be greater (than an I.O. loan), plus you cannot claim the principal component of your repayments as a tax deduction.
Something else to bear in mind is the packages offered by banks for home loan and investment loan combinations. Reduced interest rates and fees are offered for combinations over $250K (CBA) All banks are offering them in some form or another…..may be of some help as well.
Something else to bear in mind is the packages offered by banks for home loan and investment loan combinations. Reduced interest rates and fees are offered for combinations over $250K (CBA) All banks are offering them in some form or another…..may be of some help as well.thankyou i will pursue this further![
]Hi Cris,
How much do you owe on your property?
What is your income roughly? and how will you finance an investment property?This will help me answer your question.
APIM
*************
Australian Property SoftwareComing very very soon…
*************
Hi Cris,How much do you owe on your property?
What is your income roughly? and how will you finance an investment property?This will help me answer your question.
APIM
*************
Australian Property SoftwareComing very very soon…
*************APIM Thanks for offering to help!
property is SYDNEY
I owe $260k on my existing home.
paid $308k 2years ago currently approx value just going on recent sales $500-$550k need to confirm this. i earn approx $80000 gross . monthly repayments approx $1800
The reason for my interest in IP is the initall benefit it could have to help me reduce this home existing loan although not huge it eats in to my pay packet weekly i’m the sole income earner and wait for it 4 little ones (kids) so my angle on all of this is to educate myself and start at the begining and hopefully start my path on to securing a financial future for the family through property thanks once again
cris[]Hi Cris,
OK what you may want is a split loan. This will allow you to have two loans. One for your PPOR and the other for your IP. You can then make ALL the repayments into your PPOR loan and therefore reduce the loan faster.
The interest on your IP loan will be tax deductable too.
With your income and figures you gave me you will have no problem getting another loan for your IP. I would suggest you move your PPOR loan to a line of Credit loan. This will give you greater flexibility and make it easier to purchase an IP. Talk to your banker and accountant about this. (since I am neither of them.)Hope this helps,
APIM
*************
Australian Property SoftwareAPIM: http://www.apim.com.au
APDM: http://www.apim.com.au/apdm.htm
*************
Hi Cris,
following on from APIM’s helpful answer. I would be cautious about how you do your accounting with the split loan.
The ATO is not happy with any capitalised portion of interest in split loans being claimed as a deduction, and I believe there is an appeal going to the High Court. See a good accountant who understands property investing!
TerryTerence McMahon
HomeWin
FinanceCris,
I also would be careful of split loans – they can work very well but be careful of this.
The ATO, if they win their apeal will almost definetly make the tax ruling retrospective so if you have been claiming it you may be required to pay some money back.
If the ATO does not win the appeal, you would think that some legislation would be introduced quick smart to stop the process (as the Government stand to lose millions in tax refunds)
These are just my thoughts, and based on my reading and by no means fact.
If you buy an IP that is negatively geared then you will be out of pocket each week an extra amount on top of your home loan, but hopefully you will building up significant equity over time. If you buy a property that is cash flow positive then you will have a few extra dollars to pay off your home loan, but you will also have to pay a bit of tax on this extra income.
I believe that a debt reduction strategy is different to an investment strategy but they can work together.
Petters
Hi Cris,
Like Saskatoon and Peters have already mentioned the ATO does not like Split loans because of the capitalised interest on the IP loan.
However I did some calculations using split loans WITHOUT claiming the capatilised interest and you still come out miles in front.The good thing about split loans is that they help to reduce the loan on your PPOR much faster, therefore when you sell your PPOR you will have a greater NET profit that is not subject to CGT. (Whereas your IP is, at least 50% if you keep it for more than a year.)
Also if you structure yourself properly you could have an IP so that you can claim all the interest against your income (therefore paying less tax) and transfer the rent to your wife. (Because she does not have a wage she will only pay a little tax on this.)
For example let’s say you get two IP such that the rent is about $15,000 per annum each and the interest repayment is $15,000 per annum each.
Therefore if you structure yourself correclty you could transfer the $30,000 to your wife, so that she only pays $6,000 tax (so you SAVE about $8,000 per year.)
On another note, if you were just to move your existing loan to a LOC you could nearly halve the time it will take to repay your loan. Basically what you do is that you use the LOC as a great big credit card. (This can be very DANGEROUS if you can not control yourself and can leave you worse off if you are not careful.) So if you have a loan for your car, and have debt on your credit cards you want to pay them off using the LOC. Once you have “consolidated” you debts with the LOC (Remember that the interest rate on a LOC is MUCH less than a credit card.) you want your employer to pay you DIRECTLY into the LOC account.
Some people (Depending on the type of LOC you have) also use a credit card with a 44 days interest free on it. SO you buy everything with the 44 days interest free and when the time is nearly up clear the whole lot using your LOC money.
This is the strategy that some people sell for $3,000!!!! Feel free to think about it and ask questions. If I can help people reduce their PPOR loans I am more than happy to help, especially if they have 4 kids! [
]Also I have done some sums for your situation Cris, so if you want send me and email at [email protected] and I will give you the info.
Cheers,
APIM
*************
Australian Property SoftwareAPIM: http://www.apim.com.au
APDM: http://www.apim.com.au/apdm.htm
*************
thanks again APIM FOR THE E-MAIL
]
])
The topic ‘can IP help reduce existing home loan’ is closed to new replies.
