G’day All,
I bought my first home about 10 months ago. I did not have a deposit for the house & used my equity from my investment property & i was also required to pay LMI on my housing loan. I refinanced my IP to an I/O fixed loan & my new housing loan is P&I fixed.Both fixed for a year.I am considering to refinance with another bank at the end of the term due to a lower interest rate if I cannot negociate with my current lender. At the moment my goal is to pay off the house loan as soon as I can & hopefully as well buy a couple of more IPs in the near future.
I need some advise on how to structure my loan.
-Should I combine the 2 loans into one & make it P&I loan( will this reduce my tax as well )?
-Keep the loan structure the way it is?
-or I was thinking to make my IP P&I loan as well as my home loan and fix half or two thirds of the term of the loan.Any advise will be greatly appriciated.
You are best off leaving your 2 loans as 2 loans as if you combine them into 1 loan the interest on the home you live in will not be tax deductible. This also makes it very difficult at tax time as you need to prove how much you paid off each loan and the tax office will basically say “Hey you paid half of each, not 2/3 of your home loan and 1/3 of your IP”, therefore your tax deductions may work out less than they do now.
Your best off leaving the structure as is as that way you can pump all of the extra money you are saving by having an IO loan for your IP into your home loan. That way you still get to claim all of the interest on your IP loan whilst minimising the interest on your home loan.
Not sure about the last question, you’ll have to decide that one for yourself. Depends on whether you think that interest rates are going to go up enough that they will exceed the rate at which you can lock in your loan. For me, I don’t think that’s going to happen.
You are best off leaving your 2 loans as 2 loans as if you combine them into 1 loan the interest on the home you live in will not be tax deductible. This also makes it very difficult at tax time as you need to prove how much you paid off each loan and the tax office will basically say “Hey you paid half of each, not 2/3 of your home loan and 1/3 of your IP”, therefore your tax deductions may work out less than they do now.
Your best off leaving the structure as is as that way you can pump all of the extra money you are saving by having an IO loan for your IP into your home loan. That way you still get to claim all of the interest on your IP loan whilst minimising the interest on your home loan.
Not sure about the last question, you’ll have to decide that one for yourself. Depends on whether you think that interest rates are going to go up enough that they will exceed the rate at which you can lock in your loan. For me, I don’t think that’s going to happen.
Luckyone is quite correct. Making it into one loan will only give you headaches at tax time and you will also have an x-coll problem which may give trouble down the track if you add more properties or sell one of them. Best to have seperate loans not securitised with each other.
Many people are fixing atm. The feeling I get from the market is that many people believe rates are as low as they are going to be and the only way from here is up. I cannot comment on the accuracy of this tho as my crystal ball is in for cleaning [
]Fixed rates seem cheap at the moment. The three year rate is lower than many variable rates.
My advice is to keep the IP loan as IO and the PPOR loan as P&I.
The exception to this is if you feel you want to buy a new PPOR and keep the current one as an IP. In which case make the PPOR loan IO with an offset account which stores all your principal payments. This allows you to draw your principal and retain a tax deductable debt when the property is an IP….confused?
Give me a call if I can explain things any better over the phone!
Cheers,
Simon Macks
Mortgage Hunter
[email protected]
0425 228 985Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
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