All Topics / Help Needed! / confused!

Viewing 9 posts - 1 through 9 (of 9 total)
  • Profile photo of picklesampicklesam
    Participant
    @picklesam
    Join Date: 2004
    Post Count: 55

    hi all, i bought a $410k house about 20 months ago and unfortunately the market’s gone flat in that area. I recently had a big payrise and was wondering whether or not i should put most my income into paying the house off. Here’s my situation:

    I’m 27 and do not own my own home. i currently earn $4500/month after tax and $950/month from my IP. My loan is 30 years principle and interest currently at $2700/month. I borrowed $380k. My company pays my rent. Monthly expenses roughly $500/month. No other debts.

    i’ve been thinking since i don’t own my house,market’s flat, interest rates creeping upwards and i’m getting horrible yield, should i just put my head down for a few years and pay the house off? also my home loan’s got 28years to go, if i put in an extra $2000/month roughly how long would it take me to pay it off?

    any comments would be appreciated…i don’t really want to sell because i love the house and plan to retire in it, it’s in lake macquarie

    Profile photo of L.A AussieL.A Aussie
    Member
    @l.a-aussie
    Join Date: 2006
    Post Count: 1,488

    There are calculators on numerous websites such as realestate.com.au, and some of the banks that will allow you to play around with the figures and see how it affects your loan repayments etc. Even google search “loan calculators”.
    As for paying down debt on an I.P, there are different schools of thought;
    1. never pay down the Investment debt as it is tax deductable, and over time as the properties appreciate the loan becomes relatively small compared to the property value.
    2. paydown your Personal Debt first then start paying down the Investment debt as you are able.
    3. treat the I.P as you would your PPoR and use a standard P&I loan with a standard deposit set-up and keep paying both Principle and Interest. This way is nice and safe (supposedly) but limits your ability to keep buying to a degree.

    My 2c worth; I subscribe to point no.2.
    This will allow you to improve your cashflow (yield) as the debt decreases and the profit increases, along with your equity in the property.
    I would treat the big payrise as money you wouldn’t have got, and slam the whole amount onto your house, or put some in your super, maybe some more shares – as long as it is going into some assets and not doodads.

    It would be a good idea to talk to a good financial planner; there are a few very good ones on this site who should come forward and make a comment.

    Cheers,
    Marc.
    [email protected]

    “we get sent lemons; it’s up to us to make lemonade”

    Profile photo of elkamelkam
    Member
    @elkam
    Join Date: 2006
    Post Count: 722

    Hello picklesam

    Assuming an interest rate of 7.21% if you pay off $4700/ month then your loan will be paid off in just over 9 years.

    http://www.homepath.com.au/calculators/

    The link is to a good loans calculator where you can play around to see the effects of various scenarios. b.t.w. I hope you are paying fortnightly and not monthly (assuming variable loan). It saves you quite a bit of interest over the term of the loan. Have a play.

    My suggestion would be to get an offset account linked to your loan and put all of your salary into this for the time being. This will reduce the interest you pay on the loan without reducing the mortgage as such. (Actually it does as with less interest charged per month and the same loan repayments the difference comes off the principle.) This leaves you free to use the funds in the offset account for both personal and IP expenses without confusing the deductible interest on your loan.

    If some time in the future you decide to use the funds accumulated in the offset account to buy yourself a PPOR (or go on a holiday)then your deductible interest on your IP will just rise again. If you pay off the loan directly and then redraw some funds for personal use, that portion of the interest will not be deductible which would be a pity.

    Hope this helps [smiling]
    Elka

    Profile photo of rose1610rose1610
    Member
    @rose1610
    Join Date: 2003
    Post Count: 19

    I agree with Elka. Go the loan off set accounts. If you decide to use these funds later to buy your own place or spend on anything else which is not tax deductible, you are better off tax wise to just redraw the funds from the offset account than from the mortgage. We live in our place atm but intend to rent it out sooner or later – so any extra cash we have we put into an offset account and just save away in that account for a deposit for our own home -but at the same time we’re reducing the interest on our current unit. Hope that makes sense.

    Profile photo of ducksterduckster
    Participant
    @duckster
    Join Date: 2004
    Post Count: 1,674

    an offset account also could be used to save up a deposit for your next investment property that you might buy later down the track.
    Have you though about a fixed loan interest rate .

    Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.

    Profile photo of picklesampicklesam
    Participant
    @picklesam
    Join Date: 2004
    Post Count: 55

    thanks so much for all your advise…i’ll have to slowly digest them..i’m horrible with money…i’ll speak to an advisor asap…thanks again!

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,213

    I would suggest similar, except a IO loan with a 100% offset. Saves teh same interest, but allows you to use the funds saved for whatevber purpose without tax implications.

    Also I suggest you look into the 6 year rule. Move into the place briefly and establish it as your main residence. Then you may be able to avoid CGT when you sell.

    Terryw
    Discover Home Loans
    [email protected]au
    Send an email to get my newsletter.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://www.Structuring.com.au
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au

    Profile photo of picklesampicklesam
    Participant
    @picklesam
    Join Date: 2004
    Post Count: 55

    hi terryw, i actually lived in that property for a year to get the FHBG, will i still have to pay CG in the future?

    Profile photo of elkamelkam
    Member
    @elkam
    Join Date: 2006
    Post Count: 722

    Hello picklesam

    Since you lived in the property as your PPOR before turning it into an IP and have not declared any other place as your PPOR then you have up to 6 years CGT free on this property. In fact if, before the 6 years is up, you move in again and use it as your PPOR (no deductions for this period) then after a time you can turn it back into an IP and the 6 year rule starts again. i.e. no CGT.

    I don’t know for how long you have to live in it again but it will probably be in the order of 6 – 12 months but you need to check that with your accountant when the time comes.

    Nice rule eh? [biggrin]

    Elka

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