Hi people,
I’m in a position to pay off my +cf property in Canberra in under 4 years if I knuckle down.
My question is, if I make extra payments into the mortgage (with the redraw facility) do those extra payments actually reduce the principle on which interest is charged? I have an ANZ standard variable rate mortgage.
Ex. Mortgage bal.=135,000, so if I payed 3000 per mth the balance would be zero in 45 mths.
Also, I’m working out of the country and could contact the bank itself but thought it would be a better first port of call to contact those on this forum.
I’m not really after alternative ways to use that $, just whether or not there are any unexpected/hidden pitfalls to following this plan.
Thanks,
Ben.Hi Ben,
Only suggestion I can offer is to contact the bank. There could be some extra charges with paying out your loan early.
Also,. Mortgage bal.=135,000, so if I payed 3000 per mth the balance would be zero in 45 mths.
You would have to pay interest costs too.hrm
As HRM says – you need to pay $3000 on top of the interest to kill the loan in 45 months.
I suggest you place this money in an offset account. You will be effectively reducing the loan but will give yourself a lot more flexibility in the future.
Consider that in 45 months you wish to buy a home. You have 100% equity in the IP and 100% debt against the PPOR.
Not very tax effective is it?
Please look into the offset.
Cheers,
Simon Macks
Residential and Commercial Finance Broker
***NODOC @ 7.15% to 75% LVR***
[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.
Simon, but even if an offset account is used, extra payments are still considered paying off the principal of the loan, right?
If in the future say $100k is redrawn to buy a PPOR, the ‘purpose’ test says that the interest isn’t tax deductible because it’s for a PPOR.
In other words, paying off the loan on an investment property and then buying PPOR in the future isn’t a good idea as you lose the tax deductibility.
alexWe have 3 properties – one we live in valued this year at $440K with a mortgage of $293,000.00. The other two are IP. We bought the first one in April this year for $185,000.00. They had a price tag on it originally for $199,000.00. We have a mortgage on this one for $200,000.00 which we borrowed for the purchase, stamp duty and monies to fix up. The other one was $235,000.00. We have a mortgage on that one for $187,400.00 (we had to borrow the remaining $60K) for that property from father). We have paid him interest up front for 12 months at 9%. We would like to refinance to pay him this $60K back next year and also keep buying more properties. We have never missed a mortgage payment on all three properties but the bank NAB wouldn’t lend us the whole amount for the 2nd IP and no more for any other properties at this stage.
MY PROBLEM IS is keep reading reading and reading about all of these people who just keep on buying properties – where are they getting all of this money from?????? Is is just a situation that we are waiting for all three properties to go up in value until we can keep moving forward? I guess my concern with this is that everything else has gone up by then too.
Originally posted by alexlee:Simon, but even if an offset account is used, extra payments are still considered paying off the principal of the loan, right?
If in the future say $100k is redrawn to buy a PPOR, the ‘purpose’ test says that the interest isn’t tax deductible because it’s for a PPOR.
In other words, paying off the loan on an investment property and then buying PPOR in the future isn’t a good idea as you lose the tax deductibility.
alexNo – that is the beauty of the offset. It never touches the loan. You can dip into the offset and it isn’t considered a redraw or a new loan.
You can redraw for anything – the loan statement doesn’t show any transaction and you can use it as you like – esp for a PPOR.
Check with your accountant.
Cheers,
Simon Macks
Residential and Commercial Finance Broker
***NODOC @ 7.15% to 75% LVR***
[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.
Thanks for the replies.
M.H, I’ll speak to my accountant about the offset account when I get back to Oz in December.
Sounds good,
Ben.Simon. Oh wow, so is that why an offset is better than a line of credit. So simple :0)
Live, Learn and GrowLifexperience
Yes it is as simple as that.
I have so much trouble getting this across to some people. I am starting to wonder if it is their mindset that makes it hard to sink in rather than my poor explanations.
Glad to have facilitated an aha moment for you [blush2]
Cheers,
Simon Macks
Residential and Commercial Finance Broker
***NODOC @ 7.15% to 75% LVR***
[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.
Aha but oh-damn moment in one. I just jumped into two LOC loans in the last month……bugger.
.
As far as I can see, You seem to explain things simply.
I think a lot of people who get into home loans for the first time would just nod their heads and say “yes,yes,yes,,,,,,,,,um…do I get the loan or not?”
Live, Learn and GrowLifexperience
Originally posted by Shelley D.:We have 3 properties – one we live in valued this year at $440K with a mortgage of $293,000.00. The other two are IP. We bought the first one in April this year for $185,000.00. They had a price tag on it originally for $199,000.00. We have a mortgage on this one for $200,000.00 which we borrowed for the purchase, stamp duty and monies to fix up. The other one was $235,000.00. We have a mortgage on that one for $187,400.00 (we had to borrow the remaining $60K) for that property from father). We have paid him interest up front for 12 months at 9%. We would like to refinance to pay him this $60K back next year and also keep buying more properties. We have never missed a mortgage payment on all three properties but the bank NAB wouldn’t lend us the whole amount for the 2nd IP and no more for any other properties at this stage.
MY PROBLEM IS is keep reading reading and reading about all of these people who just keep on buying properties – where are they getting all of this money from?????? Is is just a situation that we are waiting for all three properties to go up in value until we can keep moving forward? I guess my concern with this is that everything else has gone up by then too.
Aren’t mortgage brokers the ones who help overcome this limitation? I’m a novice so don’t listen to anything i say but, i was listening to Bill Zheng from Investor Direct discussing how he helps his clients get around your problem by using multiple lenders…
But like i said, i dont know much about anything.
hi all
couple of things
1.The reason Mortgage Hunter is right is because he does this for a living and as I have post a few times get the best advice you don’t need to act on it but look for it.
2. Shelley D have a look for different brokers and get afeel for only that you can work with to get over your current problem look at diversifying your lending across different areas ie 1 neg and 1 pos property = 2 neutral prop this is a very simplistic equation but it gives you the idea unless for tax reasons you want neg properties with high growth it has to be taylored to your needs and that what a broker does.
3. BenJones I’ll try to answer your post I think simon is right with the account it gives you easy accessable money if you need it I wouldn’t give this advice as I don’t know you situation if you were 18 ( and you have to be to invest) I would put it in the off set account and then lend it out on the short term money market at 3% per month now thats growth but is the highest risk currently there is so its horses for coarses.
your idea of paying off your loan is reasonable good but you have come to an investor board.
this is not advice so don’t take it as and for any advice talk to an accountant.
leave the loan(I hope you used a trust and company or similar structure) as it is.
Get a second loan neg geared in a very high growth area using the excess cash you have, use excess cash into the off set account as discuss earlier and link the payment for the loans to this account.
any losses can be carried forward for any future gains.
keep for 5 years
draw the equity ( as this property because high growth is worth a large amount of equity)out of both properies. throw this cash into a commercial returning 15% and then go back to your lender or broker and get a single loan for all three properties at a fixed rate of 7% for 5 years
and your happy.
sounds simple but isn’t the figures must be set correctly and you must be willing to go outside the square sit down with an accountant and he will discuss.
any body like to cut down my little example do so and don’t post you don’t understand it if in trouble do it on a piece of paper.here to help
Dear grossrealisation
“3. BenJones I’ll try to answer your post I think simon is right with the account it gives you easy accessable money if you need it I wouldn’t give this advice as I don’t know you situation if you were 18 ( and you have to be to invest) I would put it in the off set account and then lend it out on the short term money market at 3% per month now thats growth but is the highest risk currently there is so its horses for coarses.”
Question:
Where can I find out more about the short term money market at 3% per month ???Have you tried it?
thankyou
Ruthhi ruth
you will find many companies that will give you different short term money but this is not for the novice and as posted this is not advice as you must be willing lose the lot in under a day.
send me a pm and will let you know more if you wishhere to help
Ruth,
This is the high risk end of town. I personally have seen people lose big money here.
I can think of much safer ways to invest.
Cheers,
Simon Macks
Residential and Commercial Finance Broker
***NODOC @ 7.15% to 70% LVR***
[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.
I found the ANZ Break Free package best for me with a saving account that is offset against PPR mortage and a LOC (based on my PPR Home equity) for High Cash Flow IP’s that I keep maxed out for interest tax deductability.
I keep my savings up as my IP lender (not ANZ)likes to see that, it is also reducing the interest on home loan and it is available for emergencies as I do old house rennos I might cop three big hits at once, if I do I will survive it without having to bale and be a motiviated vendor.. Try to keep enough cash in savings for a years cost of high mainteenace low occupancy in IP’s..any profits back into savings until LOC maxed out then pay off some of my home loan to increase LOC to get more IP’s not including any price growth in PPR seems that is going to be a bit falt for a while.
SO for me cash is offset against PPR mortgage, good for sleep at night factor, IP problesm and borrowing credibility, investment LOC always maxed out.
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