Have you paid off your PPOR mortgage?

[Terry_w]

I thought it was always great to pay off PPOR ASAP. So what i did before two years was put as much as I can to the loan, around $120K in two years (extra repayment), I didn’t have offset account before. It felt great as the loan was going down faster Then in 2011 I decided to refinance. When I refinanced the 120K was gone, it wasn't redrawn. I refinanced with a new lender with what was left on the mortgage. This time the home loan account have 100% offset account. Since 2011 I was putting everything on the offset account, now around $110K.

Then 2013, things started to get interesting, time to buy IP-1

PPOR
- PPOR Valued by Bank $500K
- Loan A (Bank A) = $245K
- Offset (Bank A) = 110K
- Loan B (Bank A) = $110K (Split loan Deposit + Some buying Cost for IP-1)

IP-1
- IP-1 Valued by Bank $475K
- Loan A (Bank B) = $380K

Now from my understanding I can claim TAX deduction on Loan B (Bank A), as the purpose of the loan was to get IP-1?

My understanding from pre 2011 NO offset (extra repayments) helped me get IP-1 and Loan B (Bank A) is now TAX deductible. Ok all Good but now I want to get IP-2, how will offset (Bank A) help me get my IP-2? Obviously I want it to be TAX deductible as pre 2011 money.

If I borrow more to Loan B (Bank A), LVR on PPOR will probably hit 80% and have to pay LMI..i did not pay LIMI before why should I pay now?

What is Offset (Bank A) doing for me except offsetting Loan A (Bank A), I want to get IP-2? How it is helping me with my investment strategy?

If you have no equity then you only have 2 choices.

1. Use the offset, or
2. Pay down the Loan A and reborrow setting up Loan C.

No. 2 would be preferrable because you will save more tax.

 

[kereninotech]

If you have no equity then you only have 2 choices.

1. Use the offset, or
2. Pay down the Loan A and reborrow setting up Loan C.

No. 2 would be preferrable because you will save more tax.

Terry, so it is better to pay PPOR loan and reborrow, NOT Offset account?

 

[Terry_w]

Terry, so it is better to pay PPOR loan and reborrow, NOT Offset account?

Yes, think about it.

What would happen to the interest on your home loan when you withdraw $100,000 from the offset account?

 

[Blacky]

DT, I transfer borrowed funds from an LOC (with another lender/bank) secured against IP to pay down the PPOR loan.

Then you discharge the mortgage by getting your lender/bank who holds your PPOR title as security to release it to you.

This effectively switches my PPOR loan security from the PPOR itself across to IP and frees up your PPOR title into your hot little hands.

You can use this method to get your hands on any title providing you have access to sufficient equity/funds for doing so.

Does this makes sense?

Rixter
I have been trying to keep up here, but am struggling with all the cross postings (and maybe I am a bit slow on the uptake ). Clearly other members are interested in your strategy also - and I dont want to hijack the OP thread.
Would you be so kind to articulate your methods in a new thread? I would be interested to get a clear understanding of your methods (and by the looks of it so would others).

Cheers

Blacky

 

[Rixter]

Rixter
I have been trying to keep up here, but am struggling with all the cross postings (and maybe I am a bit slow on the uptake ). Clearly other members are interested in your strategy also - and I dont want to hijack the OP thread.
Would you be so kind to articulate your methods in a new thread? I would be interested to get a clear understanding of your methods (and by the looks of it so would others).

Cheers

Blacky

Sure Blacky ...click here to new thread Releasing PPOR Title..

 

[Dean2012ad]

Originally Posted by kereninotech View Post
Terry, so it is better to pay PPOR loan and reborrow, NOT Offset account?
Yes, think about it.

What would happen to the interest on your home loan when you withdraw $100,000 from the offset account?

Thanks Terry, that makes sense to me.
Although is this redrawing/borrowing technique suitable if planning to turn the PPOR into an IP in the future?

 

[Terry_w]

Thanks Terry, that makes sense to me.
Although is this redrawing/borrowing technique suitable if planning to turn the PPOR into an IP in the future?

Ideally you woudn't use the offset if the property would become a IP in the future. But if you don't have the equity to borrow you have to decide which way to go.

If you pay down the loan and borrow with a new split then this won't change deductibility because your new split will be deductible against what it was used for - the new IP.

If you just use redraw it will effect deductibility because you will have a mixed loan and would have to apportion the interest.