Advice on my current loan

[Jeremiah17]

Hi All,

Got another question here that I need support on.

Original Loan (Split)
162k - Fixed P&I Loan (for land purchase)
180k - Variable I/O Loan (Construction Loan)

Now that the house (PPOR) is completed and we have moved in. I want to consolidate my loan to make it just the one loan, I/O, with 100% offset. Which I learned from this forum is the way to go. The breakup cost at the moment is $488 as I walked in to the bank and talk to the branch manager asking for advise.

Future Plan -
Option 1: Convert current PPOR to IP and rent somewhere cheaper.
Option 2: Convert current PPOR to IP and buy another PPOR elsewhere.
Option 3: Pull out equity from PPOR and purchase IP.

(Estimated Equity by June 2014 - 40K)

Question:
Is it worth paying the $488 breakup cost if at the moment I have three options to choose from? Because I know full well that if I am to go with Options 1 and 2, changing my current loan structure is a must for max tax benefit. but what if i go with option 3 (i know $488 is a small amount to pay for some, but it is a significant amount to me who's just starting out)

Thanks for your help as always.

 

[Brady]

What about option 4?

Just change loan 1 to IO, which bank are you with some banks very simple process with no fees... others well enjoy

This would give you flexibilty to allow you to still do 1, 2 & 3

 

[Jeremiah17]

Hi Brady,

Thanks for you reply.
Sorry I did not make that clear.

I wanted all my loans to be I/O. meaning to change my current 162k loan to I/O. Consolidating it to just the one loan would be for easy management for me. They will not charge any fee for that. (ANZ)
The only fee they will charge will be for breaking my P&I 162k Loan to I/O.
(2 years fixed @5.29%) (16 more months to finish the contract)
Current fixed rate on offer = 5.06%

Cheers!

 

[Brady]

Are you happy with the 2YR Fixed Rate of 5.29%? If you're happy with the rate then why pay the $488? Why not just change the fixed loan to IO for now have
- 2YR Fixed @ 5.29% IO $162k
- Variable Rate IO $180k

In 16 months time look to put the two loans together if required. End of the day the repayments will be interest only coming out monthly, set the repayments up to come out same day. Only impact will be visually you will have 2 loans. If this is an issue and you plan to build a large property portfolio and do so through leveraging, then I would get over the impact of multiple loans being an issue as its going to increase with more properties.

How long til you plan to purchase another property or pull out equity? As this would be a good time to restructure the current loans.

 

[Jeremiah17]

Hi Brady,

Yes I am happy with my interest rate @ 5.29%. My only concern is the tax benefit I could get when I go with option 1 or option 2 of my plan.
As of the moment, one of my loan is being paid P&I. which will reduce my tax benefit in the future. (if i go with options 1 and 2).
I have been advised by the bank manager that the value being paid towards my principal amount is still very minimal and will not affect greatly even if I converted my PPOR to IP in the future. would this statement be true?

 

[Brady]

Hi Brady,

Yes I am happy with my interest rate @ 5.29%. My only concern is the tax benefit I could get when I go with option 1 or option 2 of my plan.
As of the moment, one of my loan is being paid P&I. which will reduce my tax benefit in the future. (if i go with options 1 and 2).
I have been advised by the bank manager that the value being paid towards my principal amount is still very minimal and will not affect greatly even if I converted my PPOR to IP in the future. would this statement be true?

You will still get the same benefits by just changing the fixed loan to interest only and still could refinance the loans together at a later stage without having to pay the $488.

Not really as it all still counts, if you are going to change PPOR to IP later I would be changing the loan to IO straight away.

 

[Terry_w]

Hi Brady,

Yes I am happy with my interest rate @ 5.29%. My only concern is the tax benefit I could get when I go with option 1 or option 2 of my plan.
As of the moment, one of my loan is being paid P&I. which will reduce my tax benefit in the future. (if i go with options 1 and 2).
I have been advised by the bank manager that the value being paid towards my principal amount is still very minimal and will not affect greatly even if I converted my PPOR to IP in the future. would this statement be true?

Never believe a banker! Not without independant research anyway. Download the excel amortisation template and you could see how much is being paid off principal in the first few years.

Ideally you would want both loans to be IO with an offset account attached. But because you will be hit with a fee you have to weigh up the costs to the potential savings.

 

[Brady]

Never believe a banker! Not without independant research anyway. Download the excel amortisation template and you could see how much is being paid off principal in the first few years.

Ideally you would want both loans to be IO with an offset account attached. But because you will be hit with a fee you have to weigh up the costs to the potential savings.

Only lawyers tell the truth.

Merry Christmas

 

[THEGREAT888]

Only lawyers tell the truth.

Merry Christmas

I respect both the expertise of the banker and the lawyer with each own speciality.

And I would hope both will stay active with their positive advices in the forum...

T

 

[Terry_w]

I would suggest you never trust a lawyer either! Many get things wrong.

 

[Jeremiah17]

Thanks Guys for your responses.

@Terry -- I am currently weighing up my options at the moment hence the need to post here to assure my decision is on the right path. I agree that my loan should IO with 100% offset attached, but the break up cost is stopping me at the moment.

@brady thanks for your support mate. much appreciated.

@all - I listen to everyone and everything they say, whether I believe it or not, is up to my own DD. I really love this forum because of active members like you guys that is always willing to help.

MERRY CHRISTMAS EVERYONE!

 

[Terry_w]

Over the next 16 months you balance would drop by approx $3262 ($162K loan at 5.29% PI on min repayments over 29 years).

This means you would have tied up $3262 and have $3262 less to pay for the new PPOR residence.

at 5% interest this works out to be approx $163 per year.
This means you will be paying $163 per year more for your new PPOR interest - maybe 20 years or so.
And will be paying $163 per year less in interest on the old PPOR - which the interest would be deductible if you rented it out.

If you were on the top tax rate of 45% this means you would be paying an extra $73 per year in tax for x years until your new PPOR is paid off.

ie it would take you around 6.6 years to recoup the fee you would have to pay.

But you are probably not on the top tax rate so it would take you much longer.