Hi guys and gals,
I am looking at purchasing my first IP in Sydney. I am looking in the 300-350k range.
I owe circa $450k on my PPOR and obviously have no taxation deduction out of this. My income bracket is fairly high with recent salary increase and bonus. Aside from my PPOR loan, I have zero debt.
I have approximately $40k in a savings account, which is a 100% mortgage offset.
I would appreciate your good thoughts on the best way to go with structuring my IP loan. I was initially saving the 40K for deposit, plus closing costs on the IP.
Someone has suggested to me that it would be better to borrow the maximum I can for the value of the IP and use the saved funds that I otherwise would have used on the IP to reduce the debt on my PPOR, thereby reducing my non-deductible interest and maximising my deductible interest on the IP I propose to purchase.
The bit that I don’t quite follow is if the bank has calculated my repayments on my PPOR over 30 years, if I make additional lump sum repayments (this is not a problem as it is variable) how do I ensure that the interest is being calculated on the reduced principal, not what I originally borrowed? Will this happen automatically, or will I need to get my bank to do something?
Also, what happens if I make extra repayments weekly on my PPOR? How do I make this work for me?
I'm in the fortunate position of having zero debt and fairly high salary, so I'm quite keen to read some material on setting my finance structure up in the most efficient manner from the get-go.
Da Man wrote:Someone has suggested to me that it would be better to borrow the maximum I can for the value of the IP and use the saved funds that I otherwise would have used on the IP to reduce the debt on my PPOR, thereby reducing my non-deductible interest and maximising my deductible interest on the IP I propose to purchase.
This is good advice. No sense in using the deposit for the IP while you still have bad debt.
Once you plonk the $40,000 into the home loan, the interest will reduce. Nearly all lenders calculate interest on the daily balance. The monthly repayments will still stay the same, with the principle portion getting larger as the loan decreases. No need to tell the bank anything.
Some banks may even recalculate the monthly repayments to keep the loan term the same, so they will only take the min repayment.
Making weekly repayments will save you a bit of extra interest as the loan money is hitting the account quicker = small daily balance = less daily interest. But if you are depositing your money into your offset as soon as you get it, this is the same as paying it into the loan.
One other tip, to keep the new property separate, it may be an idea to set up a separate loan account with your current lender, like a LOC, and use this for the deposit for the next one. Use this only for investment purposes so you can claim all of the interest. And, as your PPOR increases in value, you can keep on increasing this LOC and buying more property.
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
Yep – I am with Terry.
For further acquisition of Ips you can access the increased equity of your PPOR and IP. Thus not needing a cash deposit. You can use the equity from the PPOR and make the entire new IP(an your first one) interest deductable, the whole value. You will have some cash then lying around(40K) decreasing your non-deductable debt.
You keep on doing this, paying off your PPOR slowly, and continually sucking money out of your properties for more.
After 30 years, you sell a few IPs and your living on tonnes of secure cashflow for the rest of your life.
Sorry about the babble guys, I just felt like it.Chris.
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