Hi,
We have recently bought our first home (unit) in inner western Sydney for 340k using a IO loan and a 40k deposit. We have an offset account which i am using to save a deposit for my next property and the existing property has been recently valued at 370k. I will probably continue to live where i am and rent the new property. i was planning to save 20% on the purchase price and purchase a house in Sydney in the parramatta/seven hills area for approx 300k and based on my saving statergy i would be in a position to do this by mid-2008. My partner also has past debt of approx 20k (at 12% interest) that i am thinking of paying off.
If i pay off the loan the money we save in interest covers the additional repayemnts due to the lower offset account balance
My question is: Am i best to pay off her loan and save the interest or continue building the offset balance and get into the market faster?
Any other tips on buying the investment property would be appreciated.
Thanks for the great website…i haven't been able to stop reading since i found it!!
Get rid of the 20K debt. is what the text books would all say.
It will affect your borrowing servicability calculation as does CC and PL & car loans.
Saving 20% is sound but very conservative.
You will learn advanced techniques in these forums which could help you be a little more aggressive without being foolish.
i would be inclined to paid off her loans too. And then you can both start saving faster for the next property.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
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Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Yes, I agree too. Pay off the $20K as the interest is high and not tax deductible and then both continue to save in the offset account until you have the deposit you need.
Then, when you find an IP you want to buy do not use the money you have saved as a deposit but instead use it to pay down your PPOR loan (non tax deductible debt). Then, by means of a split loan, borrow this same amount against the equity in your PPOR and use as deposit for your IP. The interest on this new loan is now tax deductible as it is being used for investing.
A great system called debt recycling which I learned by reading this and a couple of other forums.
Hope this helps
ElkaI would run some figures before making a decision.
If you wish to get into an IP sooner then using the cash for a to pay out a loan means you have to start the whole savings process again. You may be able to afford to buy then start an accelerated repayment plan to kill the personal debt and then keep it running for the next deposit.
I would answer this question after finding out your exact situation and working out what your priorities are.
Either choice can work.
Ciao,
Well my answer would be – where can you make the best return on your money. If you can exceed the 12% interest with your investment, then you should invest the money as you will earn it back at a faster rate than you pay the interest.
However, this has a caveat : it must be a SURE 12%+ return, not a 'hopeful' or prospective return. If there is a risk involved, then the return needs to be adjusted upwards to compensate. So perhaps you want a 20% return with an 80% chance that you will get it.
Additionaly, the 12%+ return has to be net after taxes and everything else.
The reason for this is the 12% interest is a definite thing, there is 0% risk the lender wont charge you for the interest next month, and you must pay it out of post-tax income because it is not deductible.
If you think you can beat 12% return on the cash invested in after-tax cashflows, then you may want to consider leaving the debt and moving towards investing. If you don't think you can do this as a sure thing, pay off the debt. And you should look at ways of transferring the debt to a lower interest rate as a matter of course. Everyone gets offers to transfer debt to honeymoon rate peronsal loans and credit cards, you shoudl investigate these to get off the 12%.
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