How to go about PPOR while planning for IP in a year

We are buying a PPOR priced at 470k. 90%LVR. Paid deposit and await settlement in January. Since am an ICT professional making a bit over $100k I want my monthly repayments to be fairly similar.

Right now, CUA's 3 year fixed at 4.89% makes the most sense to us as it offers a 100% offset and we will be able to deposit about $2k a month (at least $1k).

In over the next 1 year or so I want to be able to purchase an OTP as an IP. Will want to either rent it out or sell it once the construction is complete. Or, invest in a unit and rent it out if no OTPs make sense at that time.

Although I feel I have opted for a good home loan, I keep reading people who have poorly structured their PPOR loans and how they have repented their PPOR loan options, while purchasing their IPs down the road. Could someone please explain what is structuring a loan ? And structuring a poor one at that ? I have very basic idea of what equity is and how my PPOR can be used as a collateral for the future IP loan.

I am a first timer at property buying, know very less and want to learn. What options should I choose now, so I am not repenting when planning to buy my IP in a year or so ?
 
What you propose is not a good strategy because if you use your offset aaccount money for an investment your non deductible interest will go up. Think about it - this could cost you thousands of $$$ a year for 30 years...
 
if u are locked to CUA for whatever reason, id leave a moderate amount of the loan variable and have all asIO so that you can have some flex around your repayment, debt recycling and future investment options


ta
rolf
 
What you propose is not a good strategy because if you use your offset aaccount money for an investment your non deductible interest will go up. Think about it - this could cost you thousands of $$$ a year for 30 years...
I have googled for this but found no answers. What is non deductible interest ?

Assuming we are talking about the interest I will be paying after I pull my money out of my offset for the IP, I don't see how this will cost me thousands of $ a year for 30 years - given that at the moment I am only interested in a 3 year loan. Could you please give your opinion on what would be a good strategy ?
 
if u are locked to CUA for whatever reason, id leave a moderate amount of the loan variable and have all asIO so that you can have some flex around your repayment, debt recycling and future investment options


ta
rolf
I never understood why people just set up their payments as IO ? Isn't knocking off your principal going to knock off more interest in the long run anyway ? I am thinking paying off a fair bit of principal with every payment is going to be good for me, as the interest I pay over the term of the loan (assuming I keep this house for 30 years) will also reduce. No ?

Also good point about split. I initially wanted to split 60/40 as at about 2k a month - 24k a year the 40% part of the loan would have just about enough offset. But then I found the CUA plan and the only reason I like them is for the free extra repayments every month and a 100% offset. Since you are suggesting, I think I might split it 80/20. What say you ?
 
I never understood why people just set up their payments as IO ? Isn't knocking off your principal going to knock off more interest in the long run anyway ? I am thinking paying off a fair bit of principal with every payment is going to be good for me, as the interest I pay over the term of the loan (assuming I keep this house for 30 years) will also reduce. No ?

Also good point about split. I initially wanted to split 60/40 as at about 2k a month - 24k a year the 40% part of the loan would have just about enough offset. But then I found the CUA plan and the only reason I like them is for the free extra repayments every month and a 100% offset. Since you are suggesting, I think I might split it 80/20. What say you ?

Hi AussieB,

Part of the reason for IO and Offset, over P&I, is that it gives you flexibility and access to your funds more easily. If you need to access funds, you wont need to go do another bank app, you can access funds in the offset.

With the offset, your interest cost falls as the interest you pay is calculated on the total principal - offset funds.

Furthermore, if you turn your PPOR into an IP down the track, maintaining a higher loan balance allows for greater interest tax deductions. For example, if you bought a PPOR for 500k and paid the loan down to 100k - then your circumstance changed and you switched it to an investment property - you can only claim interest tax deductions on the 100k loan.

The accountants can correct me if i've got this wrong, but if you decide to refinance to purchase a new PPOR - the 'purpose' of the additional funds will be personal and private. Therefore you wont be able to claim interest tax deductions.

Given the above, its often advised to go with the I/O + offset setup.

Cheers,
Redom
 
Since you are suggesting, I think I might split it 80/20. What say you ?

I say maybe ;)

that may be too much or not enough

Arbitary amounts arent the best way to approach this ( usually)

have a chat with the CUA banker / broker as to what you should do, and ask them to show you debt recycling may work in your circumstances.

Once you know why you are buying an IP, and what your longer term goals are a lot of this stuff falls into place without too much thought needed, because the path to the goal is somewhat pre determined

ta
rolf
 
What you propose is not a good strategy because if you use your offset aaccount money for an investment your non deductible interest will go up. Think about it - this could cost you thousands of $$$ a year for 30 years...

Can you explain this a bit more? I have a PPOR mortgage with 100% offset account. I thought that by using the offset account (rather than redraw) I avoided the nasty tax implications when wanting to invest in IPs later down the track (which is my goal).
 
Can you explain this a bit more? I have a PPOR mortgage with 100% offset account. I thought that by using the offset account (rather than redraw) I avoided the nasty tax implications when wanting to invest in IPs later down the track (which is my goal).

Yes, it is a good strategy, but don't take money from the redraw for the investment. Get a LOC on the equity in the property and use this for the investment property deposit. If you use the offset money the non deductible interest will increase.
 
Yes, it is a good strategy, but don't take money from the redraw for the investment. Get a LOC on the equity in the property and use this for the investment property deposit. If you use the offset money the non deductible interest will increase.

Thanks. Ancora Imparo.
 
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