Larger Deposit or Smaller Depost + Redraw???

[suburbangirl]

I am just trying to get my head around 2 possible scenarios and was wondering if any of you more enlightened folk could help me?

Just say I am wanting to buy a PPOR selling for $300K. I have $180K from the sale of my previous PPOR to play with.

Am I better off using the $180K as a deposit, thus paying off a loan of $120K; *OR* putting down a minimum 20% deposit on the $300K property (ie $60K), putting $120K in a redraw facility and paying off the remaining $120K, (with the option of using some of the $120K in redraw for further investment in property)?

If I use $180K as a deposit, I will need to apply through the bank to access this equity if I want to use it down the track for further investment, yes??

What are the possibilities/benefits/disadvantages here?

Hope I haven't confused anyone! Am happy to try and explain better if need be!

 

[Dis]

****WARNING WILL ROBINSON! NOT FINANCIAL ADVICE ****

(Just what I would do)

I'd do the 20% deposit version. But put the remainer in an offset account. That way if you take the money out of the offset, there are no tax implications. If you take the money out of the redraw you have to demostrate to the tax man that this is for investment (in order to claim your full tax deduction against interest)

Also you often qualify for a lower interest rate if you borrow 150k +

Only issue I see with a bigger morgage is more mortgage tax.

 

[The Y-man]

Similarly would go the 20% version. No LMI at 80%.

Refinancing later to get to your money will have fees/duties attached.

Cheers,

The Y-man

 

[Todd]

Considering its a PPOR purchase, and any redraw/withdrawal is for investment purposes. Isnt it better to pay off the non deductible loan and then re-draw it for investment, making that portion of redraw deductible? If it was in an offset, and you pulled it back out, you wouldnt be paying interest on the money, as its your money, so no deduction and you would still be paying the full non deductible loan amount.

Am I right? or totally off track?

 

[Rolf Latham]

Hiya

on 300 k purchase and ignoring costs Id look to split 120k IO Term loan with 100 % offset and 120 k IO Investment either LOC, or depending on longer term plans with the new PPOR, perhaps also term loan with offset.

ta
rolf

 

[Rystar]

hi Rolf
im generally pretty good with following the talk on borrowing structure.
but that all seemed to be a bit quick for me.
can you please explain that a bit more???

cheers
R

 

[WillG]

Hi Suburbangirl,

If you want to turn your PPOR into an IP in a couple of years (and purchase another PPOR), you may consider putting the extra $120k into an offset account. This will make the $120k 'portable' in the most tax effective way.

The bottom line; you need to take the option that fits best with your future PPOR and IP plans. Your plan will be tax effective and keep any refinancing costs down

 

[DavidMc]

I agree with Y-man and others.

Leverage is your friend and I always look to put the absolute minimum into each IP deal. Any spare money can be parked in an offset or ticking away in a share fund.

 

[Rolf Latham]

Hi Dom

I like that analogy.

Id like to add a real life twist.

Leverage is like a recent "aquired" girlfriend.................. exciting, just affordable, and ohhhhhhhhhhh so enticing.............till one day she exclaims, Darling CAn I have another Prada Bag please ?

Risk management definitely needs to go hand in hand with the high gearing if you want to keep things on track. Gear to your hearts content, but dont let it get beyond your back up resources. Ive had clients go to the BONE, with NO reserve for a weeks vacancy etc.


ta
rolf

 

[DCA]

I quacked everything in PPOR if you not intend to do anything in the near future, remember your PPOR mortgade you are paying 7% non-tax deduction

so every dollar go toward your PPOR you earn 10% because to get 7% you need to earn around 10% based on 30% tax bracket with the money sitting else where. Not bad return and risk free

the only other advantage is capital grow on your IP if you use the money in an IP but at this time there wont be too much capital gain for a while.