Increasing cash flow

Hi,

Is anyone using PAYG withholding variation or reduction or whatever it's called, to increase cash flow / serviceability? What are the pros and cons, would be interested to hear from people who have done it. Would banks treat it as income? which essentially it is. Thanks.
 
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I beleive there are a few people here that are doing it.

I think there was a thread detailing it. Try the search button... im sure something pops up about it.
 
I've been using the ITWV (Income Tax Witholding Variation) for a couple of years, now.
Instead of waiting a year or more to get a $12k refund, I effectively get a $1,000 cash flow boost each month, which helps service my debt.
Without this facitlity, I'd not have been able to grow my portfolio as I have done without it.

Pros: All good.
Cons: You don't get a big refund at year end and you have to be fairly accurate with your estimates on income and expenses. I undersate my expenses a little to give me a buffer if things change over the year. If they don't, then I get a small refund which goes into my holiday fiund. Of course, if things to change during the year, you can just submit an amended variation.

Banks vary in the way they treat the ITWV in their serviceability models. My original bank did their sums based on my gross, then did an "add back" of the tax break I got. The mortagage insurer behind the bank stopped the add back a year or so ago. The mainstream banks I've been dealing with recently keep throwing money at me, so they must be happy with the payslips I've been submitting. I can't say how they treat the decrease in PAYG tax, but I don't really care, so long as I hear the sweet "beep .. beep .. beep" of the money truck backing up to my door.
 
As Rob said below...and used the Income Tax Variation form...but you could also do the following:

1. If you have fixed rates some banks will use this rate in their serviceability models. Don't go to banks which use their own serviceability model...some are using 7-8%!:eek:

2. Drop the limits on your credit cards or store cards.

3. Where possible increase your rents....this another 70-80% of rental increase to your serviceability.

4. Consider another lender as if you are on the existing lender may not like but another might.



I've been using the ITWV (Income Tax Witholding Variation) for a couple of years, now.
Instead of waiting a year or more to get a $12k refund, I effectively get a $1,000 cash flow boost each month, which helps service my debt.
Without this facitlity, I'd not have been able to grow my portfolio as I have done without it.

Pros: All good.
Cons: You don't get a big refund at year end and you have to be fairly accurate with your estimates on income and expenses. I undersate my expenses a little to give me a buffer if things change over the year. If they don't, then I get a small refund which goes into my holiday fiund. Of course, if things to change during the year, you can just submit an amended variation.

Banks vary in the way they treat the ITWV in their serviceability models. My original bank did their sums based on my gross, then did an "add back" of the tax break I got. The mortagage insurer behind the bank stopped the add back a year or so ago. The mainstream banks I've been dealing with recently keep throwing money at me, so they must be happy with the payslips I've been submitting. I can't say how they treat the decrease in PAYG tax, but I don't really care, so long as I hear the sweet "beep .. beep .. beep" of the money truck backing up to my door.
 
Thanks very much for your replies. I'm going to find out what bank thinks about it today, got an appointment with the loan manager at lunchtime :)
 
Thanks very much for your replies. I'm going to find out what bank thinks about it today, got an appointment with the loan manager at lunchtime :)

Oh, apart from interest rate can you also factor in rates, depreciation, body corp, water bills etc?
 
Hiya

The lenders do allow neg gearing add it on the basis of their own policy and they are all a little bit different.

This is one of the reasons that you can get HUGE variation in what lender will lend what, and one of the core reasons you need to work out which lender to use when if you are looking to be a high volume user of OPM.

ta
rolf
 
Hi - I've been using ITWV / 221 D for the last 5 years with no downsides at all. Estimate interest costs, depreciation, body corp, rates etc and most times still get back a little at tax time. Saw our accountant last afternoon and he said we've done well to soak up all our tax.
 
Yes....the short fall is based on your total expenses. But be careful...as you don't want to overclaim...talk to an accountant in relation to the details

as an simple example:

Say you have a $100K loan on a property at 6% I/O loan with a rent of $150pw.

Income: $7,800

Expenses: $10,000
Interest - $6000
Rates (water, council) - $1500
Insurance - $500
Depreciation - $2000

Your shortfall is $2,200 applied at your marginal rate assumed to be 30%.
So your tax which you get back is $660 per annum or $55 per month.


Oh, apart from interest rate can you also factor in rates, depreciation, body corp, water bills etc?
 
Getting divorced reduces your living expense as lenders classify you as single or divorced rather than married but admitedly this course of action is a little dramatic especially if the ongoing payout is greater than the increased LE costs of a couple.
 
Sounds good, I'm thinking of fixing my loans for 3 years @ 6.89% that will make it easier for ITWV as well as risk management. I'm curious to see how bank (NAB) looks at this... will see.
 
What would be your suggestion? Thanks.

At that rate, I'd be inclined to stay variable. During the time it takes for variable to go from 5.0x% up to 6.89%, you will be paying a hefty premium from day one. By the time rates go above 6.89%, then it is likely that the gaines you have made will be eroded by the premium you paid early in the term.
If you could have fixed a while ago in the low 5's, then that would have made more sense. Having missed that boat, I'd be reluctant to fix at that rate.
I know it's not all about the rate. However, having SANF and knowing your rate is locked is only worth so much premium, in my opinion.
Also, I think you will find some fixed rate loans are less flexible the variable counterparts.
No doubt rates will rise to that level within that timeframe, but I'd rather pay it when it happens, not in advance.
 
I've been thinking about this for a while and in my current circumstances I feel I'd rather pay extra for the ability to budget in advance. I may end up fixing certain portion, not sure at the moment. Thanks anyway.

At that rate, I'd be inclined to stay variable. During the time it takes for variable to go from 5.0x% up to 6.89%, you will be paying a hefty premium from day one. By the time rates go above 6.89%, then it is likely that the gaines you have made will be eroded by the premium you paid early in the term.
If you could have fixed a while ago in the low 5's, then that would have made more sense. Having missed that boat, I'd be reluctant to fix at that rate.
I know it's not all about the rate. However, having SANF and knowing your rate is locked is only worth so much premium, in my opinion.
Also, I think you will find some fixed rate loans are less flexible the variable counterparts.
No doubt rates will rise to that level within that timeframe, but I'd rather pay it when it happens, not in advance.
 
Perhaps the one or the two year rates are better option.....

For rates to get to 6.89%....it owuld take about 1.75%...I think this would take about 18-2years months to get to this level.

Some lenders are still offering 2 year rates of 5.99%....

I've been thinking about this for a while and in my current circumstances I feel I'd rather pay extra for the ability to budget in advance. I may end up fixing certain portion, not sure at the moment. Thanks anyway.
 
Perhaps the one or the two year rates are better option.....

For rates to get to 6.89%....it owuld take about 1.75%...I think this would take about 18-2years months to get to this level.

Some lenders are still offering 2 year rates of 5.99%....

I'm glad I posted here, it's good to get some fresh ideas :) Thanks.
 
I can see where Rob is coming from. However, bearing in mind some bank 4-5year fixed interest rates are being advertised at more than 7.5%, I took the view to fix half my total borrowings at 6.34%. The effect for me is that I am paying $5K as insurance.

I am taking the view that if 3 years ago I thought a variable rate in the mid-high 5's was good that certainty at 6.34% is also good.

If variable interest rises to 6% and stays there it will cost me $1200 a year

If variable rises to 7% I'll save about $2500 a year as opposed to being fully variable.

It's all about risk management. Term deposit rates are starting to increase again. The volatility of interest rates in 2007 and early 2008 also concerns me. How does an amateur assess the probability of these spikes.

Having said that I don't know if I would have fixed at 6.89% or if I would have fixed the same percentage. Variable interest in Australia seems to have averaged 6.5%-7% over the past decade.

http://www.infochoice.com.au/bankin...edTabCode=&ArticleTypeId=6&MajorCategoryIds=2
 
jrc....your thinking is very sound.:)

Most people never think through the consequences of IR volatility...usually this is the number one reason people have to sell.

In my opinion....I tend to agree with the RBA that a 2% upward increase cycle is about right. Given that an assuming a small additional increase for extra funding costs from the banks...we should see about 7.5-7.75%% as the peak of the next cycle for the lowest interest rates...the standard rate is going to be something like 8.25%-8.4%.

Given that we will not be at the peak for long...any fixed rates under 6.5% would be good from my perspective as I agree average rates in Australia are somewhere between 6.5% - 7%.

I can see where Rob is coming from. However, bearing in mind some bank 4-5year fixed interest rates are being advertised at more than 7.5%, I took the view to fix half my total borrowings at 6.34%. The effect for me is that I am paying $5K as insurance.

I am taking the view that if 3 years ago I thought a variable rate in the mid-high 5's was good that certainty at 6.34% is also good.

If variable interest rises to 6% and stays there it will cost me $1200 a year

If variable rises to 7% I'll save about $2500 a year as opposed to being fully variable.

It's all about risk management. Term deposit rates are starting to increase again. The volatility of interest rates in 2007 and early 2008 also concerns me. How does an amateur assess the probability of these spikes.

Having said that I don't know if I would have fixed at 6.89% or if I would have fixed the same percentage. Variable interest in Australia seems to have averaged 6.5%-7% over the past decade.

http://www.infochoice.com.au/bankin...edTabCode=&ArticleTypeId=6&MajorCategoryIds=2
 
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