hi guys n gals,
just curious as to whether there is any pros/cons to paying off debt on my ppor as opposed to leaving the money in my offset account? e.g will paying more off the loan help me get a loan for an ip in future or will saving the money into my offset account and leaving it there have the same effect?
also do lenders take into account how well you have paid off existing debt when applyin for an ip loan? and can this have an effect on the borrowing amount? I am paying off a personal loan as quick as possible so once its done i can free up cash to invest.
thanks in advance
It is a bad idea to pay off the loan. Leave the cash in the offset account. Here is why:
Let's say you outgrow your house and want to move. Let's say you want to convert your current PPOR into an IP and buy another house to act as your IP.
a) if you had left the cash in the offset, you simply withdraw it and go shopping. you leave the bulk of your overall debt on what is now an IP so the mortgage interest is deductable. you take as much cash to the new ppor as possible as this is non-deductable debt.
or
b) let us now suggest you were silly and paid down the PPOR. no worries you say. i'll redraw, or take out a secon mortgage against the old PPOR to fund the new PPOR. of course you can do this, but. Because the PURPOSE OF THE BORROWINGS is to buy yourself a PPOR (which is NOT an IP), the interest on the borrowings will not be deductable. so in effect, you have now achieved buying two properties, and cannot deduct the mortgage interest for either of them against your tax return. Oops. bet you're wishing you didn't pay down the house mortgage now….
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
Waydo
Jac M has answered clearly the benefits of the offset account but let us take the reasoning a little further.
Without hard data it is difficult to provide exact numbers but i assume your personal loan is at a higher interest rate to your PPOR loan. What you could do is take out a sub loan on your PPOR and use these funds to repay the personal loan.
Then link the offset account to the P/L split and reduce the interest repayment by paying both P & I as well as the interest saving funds from the offset account. Once this is repaid re-link the offset account to the PPOR loan (which i am assuming will be an interest only loan) and look at your investment options.
Depending on the numbers you might have to pay down some of the PPOR and then take out a separate loan for the deposit on the first IP and finance the balance on the security of the property itself.
Structured correctly you could save yourself a reasonable amount of interest.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
thanks for the help jacM,qldS007 the pL is all payed down as of today, now its just a matter of saving some cash for my first IP, girlfriend already has one in her name and the ppor is in my name, should this be structured any different? details below,
me-income – 90k per annum, ppor debt 280k
partner-income – 60k per annum, ip debt 213k
looking to buy my first +CF around 200k mark, will there be much difference to tax/depreciation benefits if the ip goes into joint names with combined income or just in my name with my income, pretty new to loan structuring..
thanksheaps of issues with structuring.
If you have paid off your main residence you may want to consider using a discretionary trust,
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
Terry think Waydo is refering to a Personal Loan and not PPOR.
Still agree that not sure Waydo understand the best way to structure the laon in order maximise deductions.
Cant change the names on titles of existing properties without triggering CGT and Stamp Duty (in most cases) so that is not the issue the issue is going forward and how to do so.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
so would the best way going forward be to put the next ip in my name or joint with my partner or even in a trust structure/business entity is what i am asking?
i just hear all the time that it is bad to buy property in your own name and better to buy through a trust structure or business entity?
do you have offices in adelaide richard?
cheers
He's paid his personal loan off completely.
There is still the matter of the PPOR which has an associated debt.
Waydo – Richard is in QLD but you can do everything via phone/internet/fax these days. I live in Victoria and he's currently handling a mortgage application for me from QLD. We've never met in person and don't need to. He knows his stuff and is far more valuable to me than local people I can visit in Vic. Why not give him a call and get to the bottom of your situation and what would be best for you to do going forward…
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
No unfortunately only in brisbane although do everything interstate or inter country by email / phone in the main.
The question you have to ask yourself is what type of property am i wanting to buy and why do i want to buy it.
If the property is negatively geared and you need to claim the Tax credits then you may look to buy the property in your name (or as Tenants in Common – to keep the peace back home).
If the property is positively geared from day 1 then you may look to use a DFT to hold the property.
Second consideration is how long to you think you will hold the property.
If it is a short term buy, renovate and sell or a longer term hold then a DFT might be the way forward.
In my opinion i would always hold all of my properties in Trust however i dont have a PPOR mortgage or any other non deductible liability. Not everyone is the same and some clients need to claim the Tax credit each and every pay day to put food on the table.
Once you have got over that hurdle you need to access the loan structure irrespecive of the holding.
Personally the way we would suggest every client structure the loan would be to raise where possible 20% deposit and acqusition costs on the security of the PPOR and then through a separate lender take out a standalone loan for the 80% using solely the security being purchased.
Lenders and some brokers (non on this forum) will try and encourage you to have 1 loan over the 2 securities and cross collateralise the 2 loans but i would run a mile if someone suggested this.
Hope this clears up the matter a little. More than welcome to give us a yell if you need anything else.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
waydo77 wrote:so would the best way going forward be to put the next ip in my name or joint with my partner or even in a trust structure/business entity is what i am asking? i just hear all the time that it is bad to buy property in your own name and better to buy through a trust structure or business entity? do you have offices in adelaide richard? cheersDefine 'best'!?
I personally would never buy anything in my own name, but each one's personal circumstances and situation are different.
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
Totally agree with you Terry.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
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