Hi All,
I am 25 years old and just bought my first property (PPOR), but I intend to rent out one room.
What are your thoughts on how much I should borrow?
Property Value = $525,000
Available Cash = $270,000
Difference = $255,000Not taking into consideration closing costs etc, what is the best amount to borrow? Do I borrow the minimum amount and ultimately pay lower repayments from the start, or is it potentially wise to borrow a larger amount such as $350,000 and pay back $50,000 – $100,000 immediately? The second option would give me a further discount off my interest repayments for the life off the loan and does this have tax benefits for the future if I rent it out?
Are there any other implications of taking a higher amount and paying a large portion of it off immediately?
Thanks,
B
Depends on your marginal tax rate. If you are on for example 30% tax then you lose 100% of your money to get a tax reduction of 30%
Look at an offset account as a solution to what to do with the cash.
If you save interest there is no tax benefit but you would make less loss or maybe make more profit .
Say for an extreme case example you were making $1000 a week net property income and pay 30% marginal tax($300) is this better than a net property loss of $1000 a week to get $300 back on your tax.
A linked offset account would reduce interest charged by reducing the mortgage balance by the offset account balance when the interest is calculated. (make sure 100% offset account thou) and the cash is on call if you needed it later.I would suggest you borrow 80% which is the maximum possible without LMI. Use an IO loan with the extra cash in the offset account. Best to probably split the loan too into one for $255,000 and one for $165,000. Put the offset on the $255,000 portion and place $165,000 in this. Make sure it has redraw too.
This would still lower you repayments as if you had borrowed the lesser amount but would be good for a number of reasons:
– you will have access to cash if things get tight or you run into problems
– you will have a high loan to create greater deductions if you ever move out
– banks are tightening up with lending cash amounts. so if you wanted a LOC of $165,000 later they may not give you.
– Would allow you to pay down a loan and access redraw if need be.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
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