Is it better to reduce PPOR mortgage??

[chook77]

Hi,
We have an investment property and PPOR property with NAB and another investment property with another bank.
We used the equity in the NAB investment property as a deposit for our PPOR, so we have borrowed 100%. We have a $120000 deposit in the NAB investment property.
Our question is...Would it be better for us to transfer that $120000 to the PPOR mortgage??
Thanks for any advice

 

[Brett IP]

In general, yes any excess funds should be reducing your non-deductible (bad) debt.

Do you mean you have another $120,000 available from the investment property?

If this is the case, and it is sitting in an Offset, then you should transfer this to your PPOR offset. Can you elaborate on your loan setup?

 

[marg4000]

Why borrow 100% for a PPOR when the interest is not deductible, when you have $120K available elsewhere?
Marg

 

[Rolf Latham]

Hi chook

Bit confusing : )

Pls list the numbers per property

ta
rolf

 

[chook77]

Hi,
Sorry, here are more details....

The property investment with NAB we bought for $360,000 and put a $120,000 deposit on it and are paying interest only.

The investment property with another bank, we bought was $300,00 and we put a 130,000 deposit on it and are paying interest only.

We have recently bought our PPOR using the NAB property as deposit. This is also with NAB and we are paying principal and interest. We have an offset account on that loan with about $80,000 in it that we are using to renovate the house.

We are now thinking we should put the 120,000 deposit from the investment property onto our PPOR loan.

Thanks for any advice

 

[Rolf Latham]

Hi Chook

AS the others have already summised, it aint gonna work.......since the borrowings are/were for PPOR .

A debt recycle strategy may knock off that 'bad" debt more quickly

ta
rolf

 

[chook77]

Hi Rolf,

So why can't we do it??

 

[Brett IP]

Hi Chook

If you redrew $120,000 out of the investment loan to place on your PPOR, you wouldnt be able to claim the interest on the $120,000 because the funds are being used for private purposes.

Everyone would love to redraw the equity in their IP's to completely pay off their PPOR debt, thus allowing more tax advantages on the IP & removal of bad debt on the PPOR. However in this case the extra $120k is not for investing purposes (no direct relation with gaining income).

If, however, you had an offset against the IP/'s and had spare cash in there, then you should transfer these funds to the offset against the PPOR loan & remove that debt first.

Cheers

 

[chook77]

Thanks Brett,
We are a bit new to investing so are still getting our heads around it!
So, are you saying because that 120,000 was a deposit we can't touch it?
Thanks

 

[Brett IP]

The $120,000 was paid as a deposit against the investment loan right?

So this means there is $120,000 sitting against the IP as equity. I presume this isnt in an offset?

If you refinanced $120k & put it against the loan where you live, the interest would not be claimable, it is no longer for an investment. If you used the funds as a deposit for another investment property, it would be claimable.

 

[chook77]

Yes and Yes, the 120,000 is sitting in the IP loan not in an offset.
We won't be buying another IP for a few years.

So are we best just to leave the 120,000 where it is.

We got thinking about it, because someone told us that it is best to increase the debt on your IP loan and decrease the debt on your PPOR.
Thanks

 

[Brett IP]

Yes in this case you should leave the 120,000 where it is. What you are trying to do will end up with the same result. $120k on the IP that you cant claim to reduce the PPOR debt by $120k = same end result.

It is best to have your debt where you can claim it, good debt, but you are unable to re arrange your loans in the matter you are intending.

Always best to check these things out, as you have done, & not rely on the advice of people in general conversation. Have a really good study of this website, scenarios like this pop up all the time &/or seek professional advice.

 

[chook77]

Thanks heaps for the advice, we really appreciate it!!

 

[tobe]

Its exactly the opposite way to maximise your tax deductions. Its not the end of the world.
You have a couple of options.
1)Sell one investment property. Use the casht to pay down your PPOR. Borrow 100% of a new investment property. Roughly same amount of debt, now the larger chunk is tax deductable. Lots of transaction costs....Which are deductable!!! except for the CGT....

2)Recycle your debt, find out some information on this. Its basically capitalising the deductable debt, and paying down your PPOR debt faster. Over time it has the same results as above, but does need careful examination and education.