Hi Guys!
To be honest i can't even imagine what a financial adviser costs – it scares me – so i rely on the fantastic information i can gather here and through other channels.So here is my situation:
Mortgage #1 IP originally $190k down to $130k, 8.09%, house valued at $265k
Mortgage #2 PPOR (just purchase friday) $240k 6.39%have $50k in an offset account (tied to PPOR),
want to upgrade my PPOR in 3-5 years and turn current PPOR into IP number 2.WHAT SHOULD I DO WITH THIS IN MIND?
Any thoughts very much appreciated.
I would be putting as much money as possible into your offset account to reduce the interest that you are paying on the PPOR. Is the offset a 100% offset? Also have you thought about refinancing your loan on the IP? I have just refinanced two IP loans that were at slightly higher interest rates to yours down to 5.29%. my loan repayments for both are now less than what I was paying for one!!
By paying your money into the offset it means that when you come to buy a new PPOR then you can use the money in the offset account instead of redrawing the loan. Perhaps Richard can confirm this, but I think that means that when the time comes you can claim all the interest payments on the loan for your second propert., If you redrew the money from the loan at a later date you would not be able to claim that mony because the loan would be for a PPOR not an investment property.
I hope this makes sense
cheers
Sonya
Hey Sonya
Thanks heaps for your response
i hope more people can contribute to this topic.
Yes, the offset is a 100% offset account.
Just wondering about refinancing – was that difficult – did it cost much?
Thanks heaps
CARL.Hi Carl
Firstly some of us financial advisers dont charge an arm and a leg but i agree in most cases the industry is littered with either those FA's seeking out the highest commission paying products to recommend or charging unrealistic fees for limited advice.
Now onto what you originally asked in your post:
Couple of things spring to mind which are a wee bit of concern.
1) I assume the current IP loan is a fixed rate product at 8.09% and also appears to be a P & I loan which is a definate NO.
2) Whilst you only settled on the new PPOR loan on Friday is this loan also P & I ? If so given what you are trying to achieve in a few years time again another NO.
At 6.39% the rate is rather high and whilst i dont think Sonya has factored in a couple of recent rate rises into her quoted rate you could do a lot better.
You mention the offset account so assuming the loan is with the right lender it is a fully transactional 100% offset account.
Structure and flexibility is the key to every home loan and without this your investing path wont be going too far.
Richard Taylor | Australia's leading private lender
HI Richard
Thanks for your response
sorry to make a generalisation about financial planners being pricey… i am sure there are many out there who are reasonable and worth absolutely every penny.So the situation is that we had to buy a house because i have no where to live… this was a necessity.
your response to me was:
1) I assume the current IP loan is a fixed rate product at 8.09% and also appears to be a P & I loan which is a definate NO.
This is all true, could you please elaborate on the "NO"
2) Whilst you only settled on the new PPOR loan on Friday is this loan also P & I ? If so given what you are trying to achieve in a few years time again another NO.
Yes it is P&i, please elaborate on the "NO"..
sorry but needed thank you kindly for you time,
Carl.
Hi Carl
Dont worry being a Financial planner many clients tar us all with the same brush until they get to know what you do lol.
You want to maximise your interest deductions on deductible debt and therefore do not want to be paying off principal on a investment property especially if you still have a non deductible loan secured on your PPOR.
Secondly what starts off as your PPOR may change (as per your potential position) in time so again you dont want to pay down the loan as interest on a redraw is not deductible.
Assume you pay down your current home loan by $50,000 and then in 3 years time decide to move and for your deposit redraw the $50K of extra capital payments. The interest on the $50K is not deductible however had you placed the $50K into the right type of offset account you could have drawn out the $50K and the interest on the entire loan to which the offset account was linked to would be still be deductible.
I think subject to cost restructuring both loans may still be viable.
Richard Taylor | Australia's leading private lender
Hi I found my financing an absolute nightmare!! My morgage broker took so long to get things organised, more than three months and there were additional costs whichI can't understand given that there were two rate rises before settlement as well as having paid three extra months of interest payments. I will be going over these loans with a fine tooth comb as soon as I get over this month, (losing my father last week, son's birthday, christmas etc) . However, I am happy with my new loans, Rate Tracker loans with Bankwest. I also have a new, more efficient mortgage broker who is just brilliant, and i am in the process of buying another property at the moment.
cheers
Sonya
Hi Richard and Sonya, thank you for your follow ups.
Richard the 50k is in an offset account for the PPOR so i think what i'll do for now is just pay my minimum repayments and keep this 50 and any other savings in the offset account, when it comes time to move on i will use the money in this account to buy my next PPOR and would have only paid little off the current house which will come investment #2. I will only make minimum payments on the first investment property as well. You would surprised at the pressure i get from family and friends to own everything outright that is why i come back here on this forum to have a balanced opinion.
I don't mind paying off some of the principle off my investments because i never see my self selling them. Some people i have spoken think it's silly to have investment property without owning your your PPOR but it seems that the general concensus here is that if you don't want to stay in your PPOR forever why give the bank your money when it can stay in an offset. Thanks Richard i will continue to save my own money and use that when the time comes.
Sonya i thought you might have said that the refinancing was troublesome. I am sure for some it hasn't been but i have heard a lot of times that it is lengthy and costly, i guess though if at the end of it you are much better off then it was all worth it.
Thanks again guys,
Merry Christmas,
Carl.I agree with RIchard.
Your rate is a bit high. Your loans should both be IO and also you may want to consider breaking that fixed loan. Having that means you have less cash to go into your offset account so you are paying more interest on the PPOR. You may also get a tax deduction on the break fees so it may be wise to work out what it will cost you to break and how much this will end up saving you.
Remember with every payment on PI loan you are paying down the principle and this is less money available for your future PPOR which means higher interest which is not deductible.
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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