Where to put $50,000?
- Thread starter rexilla99
- Start date
Hi Rexilla,
I'm presuming they're both IP's (with deductible interest)?
If yes, put the 50k in the loan @ 7.62%
50k offsetting @7.62% is savings of $3,810 per year
50k offsetting @7.19% is savings of $3,595 per year.
It doesn't matter which loan has the higher balance, you want it to offset the loan with the highest interest rate for the most savings.
Cheers,
Jen
I'm presuming they're both IP's (with deductible interest)?
If yes, put the 50k in the loan @ 7.62%
50k offsetting @7.62% is savings of $3,810 per year
50k offsetting @7.19% is savings of $3,595 per year.
It doesn't matter which loan has the higher balance, you want it to offset the loan with the highest interest rate for the most savings.
Cheers,
Jen
Interesting dilemma.
We have recently been investigating getting into shares and margin lending. Some may argue that putting it against your loan for a guarenteed 7.62% is a good safe bet.
We're contemplating a similar investment with a 100% margin lend giving us 100K to invest. We spoke to a portfolio manager who conservatively forcast 10%pa capital growth on that investment, plus dividends of about 4-5%, which go close to paying for the cost of the margin lend whose interest is tax deductible.
So assuming that 10% is a minimum, then you can do better than putting it against your homeloan.
Also in such a setup the interest on the margin loan is capitalised, so your dividends can go towards your loans, or any non-deductible loans, while your capital is steadily growing at 10%pa. Sounds good in theory, the problem is guarenteeing returns, which is slightly mitigated by hiring a professional, who of course come with fees, alternative is to get yourself up to speed and buy and sell yourself.
Anyway, food for thought.
Cheers,
Gooram
We have recently been investigating getting into shares and margin lending. Some may argue that putting it against your loan for a guarenteed 7.62% is a good safe bet.
We're contemplating a similar investment with a 100% margin lend giving us 100K to invest. We spoke to a portfolio manager who conservatively forcast 10%pa capital growth on that investment, plus dividends of about 4-5%, which go close to paying for the cost of the margin lend whose interest is tax deductible.
So assuming that 10% is a minimum, then you can do better than putting it against your homeloan.
Also in such a setup the interest on the margin loan is capitalised, so your dividends can go towards your loans, or any non-deductible loans, while your capital is steadily growing at 10%pa. Sounds good in theory, the problem is guarenteeing returns, which is slightly mitigated by hiring a professional, who of course come with fees, alternative is to get yourself up to speed and buy and sell yourself.
Anyway, food for thought.
Cheers,
Gooram
That's a different decision, surely. You're talking about the choice between 'reducing' debt to reduce interest (safe, guaranteed return) v investing more (higher return, more risk).
Another choice might be to use that $50k to buy another IP, if you're willing to take more risk. Or just buy, say, bank shares straight with no margin lending. With franking credits they yield around 7% with the potential for capital gains.
Alex
Another choice might be to use that $50k to buy another IP, if you're willing to take more risk. Or just buy, say, bank shares straight with no margin lending. With franking credits they yield around 7% with the potential for capital gains.
Alex
conservatively a total return of 15%??
i'd be happy with a worst case return of that .. but i'd be doing my due diligence fairly thoroughly! Admittedly i would return more than that on my own investments historically which i do class as conservative - but i'm not sure i'd be saying in the current economic climate that in the short term 15% would be a conservative estimate of future performance
but back on topic ... i'd put it in the non deductible loan (if one is non deductible) open a second sub account from that loan, redraw and invest.
if as discussed earlier both are deductible .. put it on the one with the higher interest rate, until you find an better use for those funds.
I think it's well known that I love shares, but I would never give such advice. The most I would recommend is $10k in the market. Only increase this when your knowledge and/or success says you can do so safely.
You guys worry me with your boots 'n all approach to investments. It took me five years of small profits and "hands on" experience to gain the confidence to recognise the resource bull when it presented itself and to go for it. In the years since I've done quite nicely, thank you! But serve your apprenticeship!
Hi there,
If I had $50k, I would definitely be putting it into either more property (as many as possible) or into shares/cfds/options. That's just me, but we all have different goals etc.
Good luck with it!
How about a blend - (it's what we're doing). If you're comfortable with your level of debt, put the 50K in your offest account (highest interest one), then refinance that loan to reduce your original loan amount, creating an interest only investment loan (or LOC - we use seperate investment loans) with the 50K and whatever other equity you have now available for investment (our package allows us to do the refinancing without major fees). Then invest it, knowing that you interest is now deductable on that portion you invest and you have also reduced your non-deductable debt. If you don't draw it out of the investment loan, there's no issue (or you may need to draw it all out and then put it back.
Cheers,
my account?
Never hurts to ask!
hope you figure out to do with your cash before it gets spent!
Never hurts to ask!
hope you figure out to do with your cash before it gets spent!
I understood everything up until here.
I would appreciate an explanation on this bit too. Thanks!Okey dokey,
Hhhhoooooowwwww aaaaabbbboooouuuttt aaa bbbllllleeeennnnndddd....
Not what you meant?
OK - goes like this. The aim of the game is to reduce non-deductable debt (your PPOR mortgage) in preference for deductable debt for investing.
If you put the money in an offset account for the short-medium term, you reduce your NDD only for the period the cash is in the offset account. If you then find that IP, managed fund etc that you've been looking for, if you withdraw it out from the offset account, all you have achieved is increasing your NDD again.
The alternative option (if your mortgage packaging allows) is to place the lump sum in the Offset account. Then ask your friendly bank / broker to refinance your PPOR mortgage down by the value in the offset account, and raise your existing (or new) IO investment loan by the same amount. For me, it'll take a week to turn around. Now, you have permanently reduced your PPOR debt and have investing funds available that will be deductable debt when used.
Lets look at the scenario:
PPOR loan 260k @ 7.62%.
Put the 50K in the offset (assuming one exists - if not, just do a lump sum payment into the mortgage).
Effective PPOR amount now 210K
Ask Mr bank mgr or friendly Mr broker to rejig the PPOR loan so that the principle is now 210K and raise your (existing or new) IO investment loan by 50K (or whatever equity you have in the PPOR if you like).
So now have a 210K homeloan and an IO investment loan of 50K. For my investment loan, I had to fully draw it down initially (I use an investment loan package, not a LOC), so I did, then immediately put most of the money back in again. I have a redraw facility on the investment loan, so I can get this money back when I need to invest it. In the interim, you still save the interest you were going to save if using the offset.
When I invest it (from the IO investment loan) the interest I pay is now deductable. A much better scenario than putting 50K in the offset, then drawing it back out to invest. If you do that, your non-deductable debt immediately increases back to the 260K again and you can't claim the interest because you're just using your cash to invest (or so I believe)....
If you're not looking to invest the 50K eventually, then hey, use the offset and then go buy the Beemer and keep the PPOR mortgage as high as you like. Buy it on your Amex - at least you'll get lots of points!
My proviso is that my loan packaging (Westpac professional package) allows this - although it's a little unwieldy. I won't pay break-fees etc. I understand some St George products are as simple as a fax. Best to engage a broker to get some advise on your own situation.
Hope that helps.
Cheers,
Hi Barracuda,
I think I'm missing something too. If you put 50k into an IP offset account and then taking it out to invest or for personal reasons, all the interest you pay on the entire loan is totally tax deductible - you can claim it, as it wasn't in the loan, it's in your normal everyday savings/offset account.
Cheers,
Jen
Ahh - should have stated my assumptions....
Hi Rexilla,
Can you help us by letting us know what these loans are against - I've assumed they're IP's, others have assumed at least one's your own home - you're clarification can provide much better advice! - as it will make a huge diffrerence as to where to put the funds if a PPOR is involved.
Cheers,
Jen
