2nd IP Approach

[Kiroen]

Hi all,

Currently I have 1 IP and am looking to purchase a 2nd IP. I intend to take out some of the equity from my 1st IP to purchase the 2nd IP. As my 1st IP is currently under a Interest Only, Fixed Loan (expiring Dec 2014), I am wondering though, what is the better option?

Option A: Pay down as much of the principal (as I can pay off up to 5% of the principal annually) of the 1st IP to increase the amount of equity I can take out to purchase the 2nd IP later on next year.
Option B: Save up as much I can in a high savings account and just use that as the deposit to purchase the 2nd IP.

I guess it all comes down to 2 things:
1) What's better from a tax perspective?
2) What's better in terms of being able to buy the 2nd IP without any much problems (as I intend to only put down a 5% deposit). Yes, I know, I'll be paying some LMI, but I'm young, it's not a huge price for me yet.

Any thoughts/suggestions would be helpful.

Thanx!

 

[Rolf Latham]

could you refi / equity pull your loan to 90 % , with a separate variable loan ?
ta
rolf

 

[Peter_Tersteeg]

I think you might have hamstrung yourself by fixing all of your existing loan...

Chances are that if you make extra payments on your fixed loan, you won't be able to redraw the money as a deposit for IP 2. As a result, with repect to your second question, you might be better to go for a savings account or another form of interest.

From a tax perspective, you'd usually be better off to put your savings into an offset account, rather than redraw (second best) or a savings account (third best). Given your circumstances I doubt it'll make any difference if you want to acheive your goal of purchasing IP 2 before your fixed loan expires.

It's always a good idea to leave some of your loans as variable.

 

[Aaron_C]

Prob best to put it in a savings account for future deposits since you have flexibility.