Hi all,
I have read these forums on and off to glean advice from the wise but have just signed up today to actually post a question.
I have two IPs, each with a loan. I live rent free with family so don’t have a PPOR. I plan to live in one of my IPs down the track and am using the time before then to get ahead financially as much as possible.
I have a $150k loan on the first IP, paying P&I, and a $350k loan on the second which is IO with an offset acct. Both loans are on the same interest rate. Both properties are rented out with the usual deductions claimed at tax time.
The second property is the one I will eventually make my PPOR. I’m wondering now what to do with surplus cash from my income. Should I be putting any in the offset for the bigger loan, or just pay down the first, smaller loan with all my excess cash?
I want to get this right as early as possible so I don’t waste time putting my money in the less advantageous spot.
Any advice is welcome. I know these things depend on a lot of factors but I’m happy for any advice at all
Thanks!
Hi surveysays
Cool name. Welcome to the forum.
If you're going to pay down debt it's preferable to pay down non-deductible debt (ie. your PPOR). For that reason, I'd convert IP 1 to IO straight away. When living in IP 2, place any surplus cash in that offset account.
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
Why are you paying PI on the first property if you don't intend to live in it? This = throwing money away.
I would suggest you keep both loans IO and save all you cash in the offset and not pay either down. You may find your circumstances will chance and you may not end up moving it – so if you have paid the loan down this would result in further lost money to taxation.
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
Thanks very much guys. The first IP is P&I simply because it was my first purchase and I lived there before moving out and turning it into a rental. I didn’t know what I was doing or what my plans were at the time of purchase. When I moved back out I figured I’d leave it as is, as paying some of the principal will help it get to CF+ sooner. It’s probably worth changing it to IO as you say and putting that extra into the offset for the bigger loan.
It seems like if you wait for a property to become CF+ by having gradual rent rises over the years, it can take quite a long time to get there.
Circumstances could definitely change though. That’s why I like the concept of the offset account– I can always move that money elsewhere
I agree with Terry as the full offset account will have the same effect as paying off the loan but with future flexibility if needed.
(Do not get a partial offset account ! make sure its a full offset account)
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