Loan Circumstances Changed - Payout or Switch to P&I?

[namesymot]

So here is my situation. I own two properties, 'A' and 'B'.

'A' used to be the PPOR. I took out about $80k equity from 'A' to buy property 'B' which become my IP for about a year. This was done by splitting the 'A' home loan into two and switching the loan to IO.

Recently moved into 'B' and hence 'B' is now my PPOR. Currently in the process of renting out property 'A', so it will soon become my IP.

The question that I'm struggling with now is what to do with the $80k loan, since the loan is no longer attached to an IP, thus my understanding that it's no longer tax deductible? Should I switch the loan back to P&I to reduce down my non tax deductible loan?

Property 'B' (or current PPOR) loan is setup as an IO with an offset account. My cash reserves is currently parked inside the offset account. Would it be a good strategy to use some of the cash to pay down the $80k loan and reduce my liability?

Appreciate any comments for the forum regulars. Thanks.

 

[Peter_Tersteeg]

Leave the $80k loan the way it is, but put an offset account against it. Dump all your surplus cash into that offset account.

By doing this, you'll reduce the non-deductable interest, but in the event property B becomes an IP again in the future, you'll retain the loan at its maximum for when that loan becomes tax deductable again.

 

[namesymot]

Leave the $80k loan the way it is, but put an offset account against it. Dump all your surplus cash into that offset account.

By doing this, you'll reduce the non-deductable interest, but in the event property B becomes an IP again in the future, you'll retain the loan at its maximum for when that loan becomes tax deductable again.

Thanks Peter. The $80k loan is from an online lender which doesn't offer offset facility. Not sure yet if I want to refinance the loan at this stage. Will probably look into it if I have more time on my hands.

 

[Peter_Tersteeg]

Do you have an offset account available against the loan on property B? It may not be quite as ideal, but still works.

 

[namesymot]

Do you have an offset account available against the loan on property B? It may not be quite as ideal, but still works.

Yes, as indicated in my original post. Loan 'B' has higher interest rate as well compared to the $80k loan.

 

[Terry_w]

I agree that keeping as is would be good. If B ever becomes an investment property you could claim the interest on the $80k loan too