paying off loan

[VYBerlinaV8]

You can't re-draw equity to pay down a loan because equity is not cash.

When you draw down equity, say $150k, you are borrowing an additional $150k that needs to be paid back. That money is not yours!

What do you think the equity position of a fully paid off house is?

 

[srini]

I may be wrong, but...

If IP has $100k in equity @ 6% and PPoR loan balance is $500k @ 7%

why would I not release the $100k equity, park it in the offset and save 1% on $500k per year?

 

[The Y-man]

I may be wrong, but...

If IP has $100k in equity @ 6% and PPoR loan balance is $500k @ 7%

why would I not release the $100k equity, park it in the offset and save 1% on $500k per year?

Yes you can do that.

Keep in mind

New IP loan: +$100k @6% non-tax deductible.

New PPOR loan $400k @ 7% non-deductible.

You could of course also look at refinancing the $500k PPOR loan to a lower rate if possible.

The original 3 posts of this thread however was whether you could release $100k from the PPOR to pay down the PPOR loan.....

The Y-man

 

[sentsie]

"..............I may be wrong, but...

If IP has $100k in equity @ 6% and PPoR loan balance is $500k @ 7%

why would I not release the $100k equity, park it in the offset and save 1% on $500k per year? ..............."



I think, it is not a good idea.

If you “move” $100k debt from PPoR @7% to IP @6% (moving $100k equity from IP to PPoR) then :
1. Your interest cost for IP increases by $6kpa (non deductible), and if you are in 30% tax bracket then your loss is around $1.8kpa.
2. Your interest cost for PPoR decreases by $7kpa.
3. The net is $7kpa - $6kpa -$1.8kpa = roughly Negative $800 pa, ie you are behind $800 pa.

 

[VYBerlinaV8]

Surely you can't take equity from an IP, convert it to cash via a loan, and then park it in your PPOR offset account? Such a borrowing wouldn't be tax deductible - all you would achieve is moving part of one non-deductible debt to another non-deductible location.

 

[Aaron_C]

You can do it if the bank lets you have cash-out. But like you said you run into deductibility issues.

 

[srini]

Agreed that interest on the $100 will not be tax deductible.

In my case, I refinanced an IP to release $50k and fix the rate for 2 years.

I then parked the $50k in the PPoR account to pay for landscaping (not deductible).