So i bought in Mt Druitt 4 years ago..

M

moses

I bought a unit in Hythe Street 4 years ago, for around the 200k mark.. and have been steadily paying it off (we are renting it out).

However, about 2 years into owning we took an extra loan out, to purchase a car..

fast forward to now, and Im thinking about selling the car (for approx. 15k) and purchasing a CHEAPER car.. and putting 10k back onto the home loan..

im doing this for 2 reasons;

* I want to pay it off quickly and have made it a goal over the next 2 years to be as diligent as i can - and put as much as i can to the homeloan

and,

* To gain more equity, so my partner can purchase her first home with the next year or 2.. with my name on it aswell.


Does this idea make sense? or is 10k not really worth it in the long run?

I hope what im saying makes sense :) This site was one of the reasons i purchased my unit - and i think im quite happy with the purchase! Well, i hope ive done well.

Thank you
 
How much is the 'extra loan' for? Please tell me its a seperate account from the main bit, otherwise you'll have deductible and nondeductible interest together.

I think its a great idea. Downgrade the car, get rid of some personal debt. Even try to pay off that 'extra loan' - i hope you're prioritising this over paying off the main part? Personal debt will go against you when its time for you and the partner to buy a place together.
 
As above. Hope it's a separate loan for the car, not money taken from the IPLoan.
Also if you are paying down the IP loan I hope it's into an offset account otherwise you are paying down deductible debt and will have a loan on your new house of non deductible debt. Ie when you take the money out of the IP loan that money is not deductible.
Gets very messy and loses tax deductions.
 
the loan was for 20k .. the thing is, i had it added to the initial loan i got for the home. It was for renovations etc.. im hoping i can sell the car (which is not necessary - downsize, and pay some debt)

i have NO idea if it's a good idea, i just want to do my best to get rid of some of this debt

any advice would be awesome
 
hmm for some reason, im thinking it's looking 'messing' :/

I didnt get it as a separate loan.. in retrospect, i didn't.

Is it still possible to try paying it off? or should i forget about this idea?
 
Stop!

You need to make sure you are doing this the correct way.

By paying of a loan then redrawing or even taking out an equity loan for personal use then that potion of the loan wont be tax deductible.

Funds would be better in an offset account.

This would allow you to access the funds for the future personal purchase, keeing the original debt as tax deductible.

Would also suggest that you look at interest only and putting all your extra funds into the offset.

Whilst it's great that you are repaying your loan which is reducing your interest and building your equity.
You would benefit more by having the funds in the offset as the interest would still be reduced but it keeps your capital, the principal repayments available in offset account that you can use in the future for personal use.
 
Brady said:
Stop!

You need to make sure you are doing this the correct way.

By paying of a loan then redrawing or even taking out an equity loan for personal use then that potion of the loan wont be tax deductible.

Funds would be better in an offset account.

This would allow you to access the funds for the future personal purchase, keeing the original debt as tax deductible.

Would also suggest that you look at interest only and putting all your extra funds into the offset.

Whilst it's great that you are repaying your loan which is reducing your interest and building your equity.
You would benefit more by having the funds in the offset as the interest would still be reduced but it keeps your capital, the principal repayments available in offset account that you can use in the future for personal use.
Click to expand...

thanks, very insightful and helpful info..

So your saying, since ive ALREADY taken a loan out on top of my homeloan, i'd be better off selling the car, BUT INSTEAD of paying off the homeloan, i should open an offset account up.. and the put 10k there?? and then what? save more?

just clarifying.

I probably should have NEVER taken the extra load out, but i was young and stupid (still am to an extent - but im learning, even if its the hard way) :)
 
moses said:
I probably should have NEVER taken the extra load out, but i was young and stupid
Click to expand...

well, maybe not.

Any decent banker or broker with half a noodle wouldhave flagged the mixed purpose loans issue - they do that stuff every day, you dont ( I guess)

ta

rolf
 
So what does you accountant say? Does he know you've withdrawn money from the IP to buy a car? Have you been claiming the full interest on your tax? :eek:

I'd put it back. At least if you are audited it doesn't look like you are trying to defraud the govt.

As above. Get an interest only account and put the extra into an offset account. Then you can legally withdraw it to buy a PPOR (or a car). :D

NEVER mix personal and investment loans.
 
moses said:
thanks, very insightful and helpful info..

So your saying, since ive ALREADY taken a loan out on top of my homeloan, i'd be better off selling the car, BUT INSTEAD of paying off the homeloan, i should open an offset account up.. and the put 10k there?? and then what? save more?

just clarifying.

I probably should have NEVER taken the extra load out, but i was young and stupid (still am to an extent - but im learning, even if its the hard way) :)
Click to expand...

The issue is that if you have just simple topped up your existing loan you will have a mixed purpose loan.

If it was a separate loan then you could just pay that loan off as it's for personal use.

What has your account claimed on your tax?
I would assume that he was aware that the debt was mixed purpose and was only claiming a portion?

If that's not the case I would suggest speaking with an account for professional specific advise.

It may just be a case of just paying back the amount, but sounds like its already messy with mixed purpose... Maybe could split to difine the two purposes then repay the personal portion (as above I'm no accountant so please seek professional advise)

Going forward interest only with offset could work well.
 
I haven't done anything in regards to tax as we've only recently started renting it out.

The banks suggested that would be the best way we could get some renovations done and a car.

If i put extra money into an offset account, and pay interest only on the IP.. how do i pay off the loan? if im only paying interest?

apologies if i seem vague, i admittedly find it very confusing :/
 
moses said:
I haven't done anything in regards to tax as we've only recently started renting it out.

The banks suggested that would be the best way we could get some renovations done and a car.

If i put extra money into an offset account, and pay interest only on the IP.. how do i pay off the loan? if im only paying interest?

apologies if i seem vague, i admittedly find it very confusing :/
Click to expand...

Hi,
Firstly you say you only just started renting it out but was purchased 4 years ago were you living in it,
By having a offset account any money that sits in there reduces your interest payments so collectively more you have in their the quicker to pay down loan,having interest only makes your repayments lower so you are less out of pocket.
Macca446
 
Thanks to everybody who has replied :) instead of jogging your brain with questions that are probably to broad to answer over a forum, i shall visit an accountant and plan next step :)
 
You have done good, but have cost yourself money - which could have assisted you in paying off the unit faster.

2 mistakes:
1. Taking advice from a banker
2. Mixing business and pleasure

Mixing business and pleasure means you will pay more tax.

You are also committing an even larger mistake in paying off the unit.

Consider what will happen if the unit is fully paid off and you buy a new home to live in - You will:
1. have a large rental income which means more tax, and
2. Large loan on the main residence which won't be deductible.
 
moses said:
I haven't done anything in regards to tax as we've only recently started renting it out.

The banks suggested that would be the best way we could get some renovations done and a car.

If i put extra money into an offset account, and pay interest only on the IP.. how do i pay off the loan? if im only paying interest?

apologies if i seem vague, i admittedly find it very confusing :/
Click to expand...

Are the Renovations for the property that the original loan was for? If so that's fine because its renovations for the investment property, thus tax deductible.

Whereas the vehicle is personal and although you can get a better rate by using the equity in your existing property, it needs to be a separate loan as its for personal and not tax deductible.

As for paying off your loan... You don't. You put all funds into the offset account, this will build up and as it does the interest that is charged each month decreases. Even if you get the offset to the same balancea as the loan you would still want to keep the funds in the offset that way it will allow youths flexibility if you wanted rse the funds for personal use.(like buying your own PPOR)
 
Brady said:
Are the Renovations for the property that the original loan was for? If so that's fine because its renovations for the investment property, thus tax deductible.

Whereas the vehicle is personal and although you can get a better rate by using the equity in your existing property, it needs to be a separate loan as its for personal and not tax deductible.

As for paying off your loan... You don't. You put all funds into the offset account, this will build up and as it does the interest that is charged each month decreases. Even if you get the offset to the same balancea as the loan you would still want to keep the funds in the offset that way it will allow youths flexibility if you wanted rse the funds for personal use.(like buying your own PPOR)
Click to expand...

Hi,

So lets say structure for OP is:
Loan 1: 200K;
Loan 2: 50K with offset (offset has savings of 20K)
Both loans are against investment property

So in total OP is paying interest on 230K; and now he goes and buys a car for 20K;so he starts paying int on 250K , but car is for personal use, so how can another loan with offset acct help?
 
tvadera said:
Hi,

So lets say structure for OP is:
Loan 1: 200K;
Loan 2: 50K with offset (offset has savings of 20K)
Both loans are against investment property

So in total OP is paying interest on 230K; and now he goes and buys a car for 20K;so he starts paying int on 250K , but car is for personal use, so how can another loan with offset acct help?
Click to expand...

It wouldn't.

If the OP has set the loan up with this structure then it's fine.

As it won't be a redrawing from the loan it will be wtihdrawing from his offset (savings).

If redrawing purpose if redefined by what the funds are to be used for so if for investment then can be tax deductible if for personal then it's not.

Taking duds from the offset dowdy effect the tax deductability as the loan balance and the original purpose of the loan remains the same
 
I'm having trouble understanding a few of the abbreviations.. would anyone have any advice in simple terms.

I don't need a new car, so basically what i'm saying is.. would selling it and putting 10k in an 'offset' account (to continue saving) be a better option? and just pay Interest only to the loan?

Or would paying 10k off the loan be a better option?

Or, keep the car cause neither option makes sense? hehe

But i can definitely downsize the car :)
 
moses said:
I'm having trouble understanding a few of the abbreviations.. would anyone have any advice in simple terms.

I don't need a new car, so basically what i'm saying is.. would selling it and putting 10k in an 'offset' account (to continue saving) be a better option? and just pay Interest only to the loan?

Or would paying 10k off the loan be a better option?

Or, keep the car cause neither option makes sense? hehe

But i can definitely downsize the car :)
Click to expand...

Put funds into offset.

Don't pay down the loan.

But problem is you already have a mixed purpose loan
 
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