Im struggling to get my head around this fundamental.
Lets say I neutrally gear a property, the yield is just paying the interest.
If I start to pay extra repayments from my own salary, this reduces the interest payable.
The more interest I reduce the less the yield is paying interest and starts to pay principle and starts to become eligible for income tax because of this?
So effectively the more I pay off an IP the more tax I am paying, which reduces the benefit of extra repayments and I am increasing my taxable income?
So would it be more cost effective to keep a property neutrally geared, and save the extra repayments and invest them elsewhere, then pay the IP off in one lump sum?
Is there a calculator that shows the impact to yield tax based on extra repayments?
Lets say I neutrally gear a property, the yield is just paying the interest.
If I start to pay extra repayments from my own salary, this reduces the interest payable.
The more interest I reduce the less the yield is paying interest and starts to pay principle and starts to become eligible for income tax because of this?
So effectively the more I pay off an IP the more tax I am paying, which reduces the benefit of extra repayments and I am increasing my taxable income?
So would it be more cost effective to keep a property neutrally geared, and save the extra repayments and invest them elsewhere, then pay the IP off in one lump sum?
Is there a calculator that shows the impact to yield tax based on extra repayments?