I have a certain ammount of money in one of my loans that is available in re-draw.
My question is, is it better to leave it there, thus reducing the interest payable? or is it better to invest it in some of the short term fixed rates on offer (ie less then a yr)
My reasoning is that 10,000 invested at 8.35% will return you $835.
10,000 of that money withdrawn from an interest only loan of 6.5 % over 25 years (ie going from $230K to 240K) will “cost” you just over $650 over the year in extra repayments…
Therefore u will make a profit of $185.
But how does tax then get sorted out? the redraw is used for investing, therefore its still claimable on tax, but then u hav a profit from the investment, also to be taxed…..
Im thinking that the better option IS to re-invest it…
Is it as simple as how i explained it? what have i missed out on?
I remember there was a ratio that owners with motgages on their PPOR could use to best determine how to use their money (ie if the investment return was X % above their mortgage interest rate then it was better off investing then repaying, as the higher returns, when compounded and eventually injected into the loan would in effect reduce it more then if the same money was paid into the loan bit by bit)… is this similar???
hope i made sense!
thanx for any information / advice in advance!
Jason
Jason
I think after reading your post several times i now understand it.
Firstly may i ask where you would obtain 8.35% return on a short term fixed rate. I assume that you are referring to first mortgage lending or similar investment that carries with it an element of risk.
Lets assume that you can get around this.
You may then fall foul of the ATO’s “purpose test” by using redraw and maybe better to establish a separate line of credit to access your available funds.
After doing this you are right you will be required to pay tax on the profit. Using your example your tax would be payable on the additional $185 of income and would vary depending on your marginal tax bracket.
All in all with possible set up costs i think you would ask yourself the question would you bother for a net amount of around $100.
Cheers Richard
[email protected]
http://www.fhog.com.auThere is no such thing as a problem.
Just a solution waiting to be foundRichard Taylor | Australia's leading private lender
Thankyou for your feed back Richard
Yes, i hav found financial establishments that will invest your money at up to 8.5% for 1 yr in Unsecured Deposit notes… (and another at 8.35% for 6 months if memory serves)
So the extra interest that will be payable if i withdraw the money is not a claimable tax deduction then??? What if i can prove that the money was mine to begin with? ie pay from work or the profit from the sale of a property?
In the end the money made isnt that much i guess…
I re-financed some of my property at fixed rates (3 days before the .25 rate rise – YAY) and pulled all available funds in the process, which was then used to offset another loan that i want to keep open, but just left a few grand oweing.
So the basis of the question was to also work out if i should just invest what will esentially sitting in a bank account, or take it further and invest some more….
i think u hav answered my question but, im gonna put all i can into the loan and whatever is left over will be invested only…
Thankyou, sorry to confuse lol
Jason
I think you will find that interest on money borrowed to invest is claimable, but the hard part with a redraw is determining the portion of interest that was used for investments and the portion attributable to you home loan. Especially if your home loan is PI and you want to pay IO on your investment portion. Having a split account with 2 (or more) accounts makes it easy to account for.
Terryw
Discover Home Loans
North Sydney
[email protected]Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Thanx Terry
The re-finance i mentioned was interest only btw
… i guess i will investigate this further once funds hav cleared, the paperwork is still going through Jason
Jason
Think Terry has expanded on what i was going to say. All I would say is higher the rate of return higher the risk.
Yields on several blue chip stocks would not be to far away from giving you a positive cash flow especially with the benefit of franking credits and in my opinion would be lot less riskier than unsecured deposit notes.
Cheers Richard
[email protected]
http://www.fhog.com.auThere is no such thing as a problem.
Just a solution waiting to be foundRichard Taylor | Australia's leading private lender
Thanx…
I havnt delt much into shares to be honest, i do hav a few, and was close to “investing” in Big Kev when he floated (now there is a contradiction) .. lucky i didnt!
Im also listening on the news that shares in a company that trades overseas are declining due to the weakening us dollar? ie BHP, which is considered a “blue chip” isnt it??
But in the end of the day isnt it all a gamble? I hav invested hard in real estate since i was 20, and havnt made a wrong move as yet (to the suprise of many of my peers) and in the current market i think i should put my real estate persuits on hold and diversify.. shares are an option, but im treading carefully… a certain float in the next week has caught my eye, so im gonna put sum towards that as well…
Very interesting to see what happens in the next year or 2, real estate, shares, the dollar, everything lol.. i was cringing when i went through an old “homes pictorial” from 2001 last night…
time will tell!
Jason
Yes, i hav found financial establishments that will invest your money at up to 8.5% for 1 yr in Unsecured Deposit notesJason,
could you give me the name of that financial establishment?
thanksBJ
BJ
What about this one
http://www.hastingscapital.com.au
8.25%or
http://www.eurofinance.com.au
8.75%Terryw
Discover Home Loans
North Sydney
[email protected]Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
BJ
What about this one
http://www.hastingscapital.com.au
8.25%or
http://www.eurofinance.com.au
8.75%Terryw
Discover Home Loans
North Sydney
[email protected]Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Yes i was looking at Citypac as well
http://www.fincorp.com.au has 8.5% for 1 year
http://www.citypac.com.au have 7.1% “at call”
and 8.35% for 12 monthsJust open the money section of the Herald, and there i was all day running round the banks thinking anything over 5 % for a year was worth putting money into lol
All the best!
Jason
Hey all,
Just out of interest for those of you looking into depositing money on a fixed rate i think you would be interested at looking at this website.7.5% p.a. for 6 months
9.0% p.a. for 12 months
9.5% p.a. for 24 monthsIf that doesn’t help then call me them and ask for a prospectus. FREECALL AUSTRALIA 1800 990 998
I hope this helps.
Mattthanks for the replies
appreciate it
BJ
BJWhat about this one
http://www.hastingscapital.com.au
8.25%or
http://www.eurofinance.com.au
8.75%Terryw
Discover Home Loans
North Sydney
[email protected]Hi guys,
just came across to your useful info and instantly started asking myself why the hell did I put my money on term deposit with interest less than 5% pa??Anyway those financial institutions/trusts you are referring here – how secure it is to invest in them? Has any of you ever put money in there? I am just a newbie so I did not hear many of the names mentioned here and would not like to lose the little I have;)
Thanks
Teacher,
I know this might go against the current wisdom of not buying right now, but I wouldn’t give property a complete miss now. The money you have might be used to purchase a small property, and your gains *could* be much greater than 8.75%.
I bought a property two months ago, just had a valuation done on it and my bank manager told me yesterday it had come back at 29% higher than my purchase price!
I believe there are still gains to be had if you’re a careful teacher :o)) Your 10k could become much more. But I did ask a very similar question to your Q a few weeks ago. I think the lack of tax deductibility, inflation, and missed opportunities would now sway me towards investing cash in property, rather than non-deductible interest.
I know you asked if you could leave that equity in your mortgage, and having reread your Q, I know I haven’t answered your Q at all! hehe. but never mind. Equity is equity, and I think there’s many uses for it.
Phobia, 9.5% for two years does sound attractive, but I wouldn’t want to tie up too much cash for two years. I reckon there are *always* good value properties available- in any market, somewhere.
kay henry
Thanx Kay,
I hear what your saying, this year i hav made 4 property transactions, 3 purchases and a sale. i hav the long term goal of being home when and if i hav kids as a full time dad. i finished 5 years of full time study just last year and in all honesty i really need a break.
Its my personal opinion that real estate is the best way to financial freedom, but i also think that the somewhat un natural growth in property is going to cause issues down the track, and sooner, rather then later. im not trying to say its all doom and gloom, but i am very cautious.
My last Purchase was in Cowra, and we all know, (according to another post), that the empty rentals are growing… but i must say that i hav invested my money wisley in my opinion, meaning that if 1 property should fold, others will be there to support the losses. If i find a property that fits into the 11 sec rule, then obviously i will seriously consider it, as i did with my other purchases..
Im glad to hear that your property has returned such a large percentage of capital growth in such a short time, but the tickets to europe hav already been paid for and im taking an extended holiday, with wiews to perhaps work overseas for a few years (another dream i hav had since starting uni) if this does happen, i need to start looking into investment mediums that are maintenence free, such as cash and fixed rates..
If my goals were to keep buying, then i would never consider anything but property. but i think i hav a portfolio at this point in time that will take care of me in my older years, allow me to enjoy life right now as well, and gives me options should i choose to start a family, or move out of mum and dads home, or whatever i decide to do that requires financial support, therefore at this point in time im 100% satisfied with my acomplishments.
Anyway, its late, I hav said enough lol
Although my question was not answered 100%, it has given me many more ideas about what i could invest in, thanx for all your input
Jason
Dear Jason,
Lucky you going to europe! I am going there too in February 2004. Courtesy of capital growth from an IP thank you very much
I too have never travelled out of Australia before, so I presume it will be a blast. Have you thought of teaching in Japan? A few of my friends have done that, and onew doesn’t need a teaching degree to be able to do so- just a generalised degree, although given your nickname, I presume you have teaching quals Best of luck with it Jason, and your property portfolio sounds exciting too!
kay henry
Kay…
Teaching in Japan has been an option i hav looked into, as well as London and even Korea. my holiday is going to also be an info gathering exercise as im staying in London new years with a school friend who is also teaching there… she loves it
Yes, i am an actual real life, fair dinkum primary school teacher lol… but ur rite about not needing proper teaching qualifications (but if u got em u do get a fraction more so i been told) i also hav a degree in DT
Im off tomorrow, woops i mean today (sunday) to the backpackers and travel expo in the sydney town hall, just to hav a sticky beak lol… should be fun
All the best Kay, hav fun on your trip as well!!
Jason
Dear Jason,
Go to bed!! But before you go, check out the vendor finance/wraps discussion board- there’s a funny topic on there.
kay henry *unmasked!*
I too have never travelled out of Australia before, so I presume it will be a blast. Have you thought of teaching in Japan? A few of my friends have done that, and onew doesn’t need a teaching degree to be able to do so- just a generalised degree, although given your nickname, I presume you have teaching quals The topic ‘How best to use available money?’ is closed to new replies.
