Paying off PPOR good or bad?

[KyanFable]

I love this forum ...im getting some really good feedback, thanks guys.

I was just working on structuring my next purchase. My balance is 120k on my PPOR with 90k in redraw. Property value 320k. Ill be splitting my loan into 2 and using the 90k as deposit on my first IP, purchase price approx 400k.

Im thinking of having my IP loan IO so i can focus on paying down my PPOR. Im wondering what you guys think about paying off your PPOR completely as i have the potential to do this within 1 year. Is this the smartest thing to do?

Once its paid off then what? How do i use equity in PPOR to buy more property?

My goal is to buy at least 4 IP in the next 4 years.

Thanks for your thoughts guys.

 

[Rolf Latham]

If you fully pay of your PPOR

Celebrate !


However, you may want to do some careful planning witha broker/accountant/financial planner.

Many folks that come to me regret killing off their PPOR debt for a number of reasons which are various, but most often relate to turning that PPOR into an IP.

Less of an isse if you regear for IP purchases, but a major hassle if you reborrow at some stage for new PPOR

t
arolf

 

[KyanFable]

I plan on converting my ppor into an ip in 3 years time.

If i refinance now and split my loan maybe i should park all my funds in an offset account instead of paying down the ppor????

For example

Loan 1 120k p&i standard loan
Loan 2 90k IO with linked offset account

Loan 3 320k IO

Would this be ideal instead?

 

[Rolf Latham]

good insurance to park in offset

gives options

ta
rolf

 

[Aaron_C]

Having the PPOR paid off is a good problem to have. Would think carefully before doing it though if you intend to rent it out later.

 

[Terry_w]

If the PPOR could become an IP then best, generally, to not pay the loan down but to use an offset.

 

[Point Break]

Setup 100% offset on PPOR and have all wages, rent etc going into it too reduce payable interest on PPOR. When you turn it into a IP remove all offset cash and use it to fund other purchaces or lifestyle choices.

 

[BMan]

I plan on converting my ppor into an ip in 3 years time.

If i refinance now and split my loan maybe i should park all my funds in an offset account instead of paying down the ppor????

For example

Loan 1 120k p&i standard loan
Loan 2 90k IO with linked offset account

Loan 3 320k IO

Would this be ideal instead?

ideal would be

revalue house if it values for 320k
loan 1 - 120k IO with offset - what you owe - put all extra money into this
loan 2 - 136k undrawn loan - whats left of an 80% lend (dont contaminate) - use as a deposit, stamp duty, holding costs etc for purchase of new IP

loan 3 320k IO

 

[tvadera]

ideal would be

revalue house if it values for 320k
loan 1 - 120k IO with offset - what you owe - put all extra money into this
loan 2 - 136k undrawn loan - whats left of an 80% lend (dont contaminate) - use as a deposit, stamp duty, holding costs etc for purchase of new IP

loan 3 320k IO

loan 2 - 136k undrawn loan - whats left of an 80% lend (dont contaminate) - use as a deposit, stamp duty, holding costs etc for purchase of new IP
- Can you do that? For long can you keep the loan undrawn. If property purchase is not due for 6 months - 1 year. What happens if you decide to not buy?

Regards,
TV

 

[BMan]

loan 2 - 136k undrawn loan - whats left of an 80% lend (dont contaminate) - use as a deposit, stamp duty, holding costs etc for purchase of new IP
- Can you do that? For long can you keep the loan undrawn. If property purchase is not due for 6 months - 1 year. What happens if you decide to not buy?

Regards,
TV

i have had a few loans sitting like that for over 6 months
you basically have the loan and get the money paid into an account (one that doesnt have any money in it to contaminate) then transfer the money into the loan as redraw and with IO it doesnt cost you anything to hold and you have the money at your fingertips whenever you choose to use it
and since the security for it is your ppor then unless you sell it you can keep it however long you like

Rolf set it up like that maybe best to talk to him if you need more advice about that situation

 

[KyanFable]

So I'm currently organising to split my loan into 2 portions.

Loan 1 120k IO with 100% offset
Loan 2 90k IO with 100% offset

My question is do I get my bank to deposit my current 90k which is currently sitting in a redraw facility , into the loan 2 account or into the attached offset account???

Bearing in mind that I will be using the 90k as my 20% deposit in approx 3-4 months time.

Thanks for any help.

 

[Aaron_C]

I'd leave the offset money of 90k in the loan 2 offset account and then just prior to buying the next property I'll transfer it directly into the loan itself and redraw it out.

 

[KyanFable]

I'd leave the offset money of 90k in the loan 2 offset account and then just prior to buying the next property I'll transfer it directly into the loan itself and redraw it out.

Do you mean prior to buying next property transfer the 90k directly into the new 320k loan and then redraw it out to pay the deposit?

 

[Aaron_C]

Do you mean prior to buying next property transfer the 90k directly into the new 320k loan and then redraw it out to pay the deposit?

Yes that's right.

 

[KyanFable]

Would there be any benefit in having a third offset account on the 320k loan?

Also what's the best way to direct funds? Eg

Offset 1 put all work income into and take all living expenses out
Offset 2 put rental income into and pay out rates etc
?

 

[Aaron_C]

You only need one offset account.

 

[dajackal]

you basically have the loan and get the money paid into an account (one that doesnt have any money in it to contaminate) then transfer the money into the loan as redraw and with IO it doesnt cost you anything to hold and you have the money at your fingertips whenever you choose to use it

I'm looking to borrow against an existing IP to fund a new IP purchase.

I went to see my lender and he suggested the same thing - to setup a new split loan against the existing IP bringing the LVR up to 80% and when the loan is funded to transfer the money into the loan account.

But I'm just wondering from a practicality perspective whether it's just as simple as redrawing the amount required into a deposit account which I can use to draw a bank cheque for balance of 20% deposit and personal cheques for solicitor/water/strata adjustments. Are there any tax issues surrounding this? As long as the amounts I'm redrawing are used for the purpose of purchasing an IP, is it then safe to deduct the full interest repayments on this split loan?

 

[Aaron_C]

As long as the amounts I'm redrawing are used for the purpose of purchasing an IP, is it then safe to deduct the full interest repayments on this split loan?

You can't draw cheques from loan accounts so obviously this will be fine. It all depends on the circumstances.

 

[Terry_w]

I'm looking to borrow against an existing IP to fund a new IP purchase.

I went to see my lender and he suggested the same thing - to setup a new split loan against the existing IP bringing the LVR up to 80% and when the loan is funded to transfer the money into the loan account.

But I'm just wondering from a practicality perspective whether it's just as simple as redrawing the amount required into a deposit account which I can use to draw a bank cheque for balance of 20% deposit and personal cheques for solicitor/water/strata adjustments. Are there any tax issues surrounding this? As long as the amounts I'm redrawing are used for the purpose of purchasing an IP, is it then safe to deduct the full interest repayments on this split loan?

You run the risk of the interest being not deductible if you borrow and park into a savings account.

 

[KyanFable]

Bumbling an old thread because I have a question about my structure.

I've set up the following split so I can use 90k as a deposit on an investment property. Looks like this:

Loan 1 PPOR loan 120k with offset account

Loan 2 Deposit loan 90k with offset account

my question is I plan on using loan 1 offset to put my wages into and pay every day living expenses out of. I plan to use loan 2 offset for investment property income and pay out rates and water etc.

Is this the correct way to utilize the 2 offset accounts?