Hi guys
so ive got off my but and called my bank about my loan
been paying 8.09% on my rental – ouch
its on a loan for $190k which is now about $120k
its P&I which i am cool with, i want to pay it off.
so the break fee is $1600 as i locked it in for 5 years : (
the new rate will be 6%
that brings my f/n repayments down from $650 to $350 according to mr. bank and if my maths is correct will pay for the fee within six monthsso my question is, now that ill be getting more money in my pocket because i rent it out at $560 f/n
do i pay tax on the rent earned? because ideally i would like to put this into my PPOR which i am owing
or does the rent continue to pay of the P&I of the loan?in other words what the best thing to do with the extra cash?
Thanks guys
i know i have done this the wrong way but being young and naive and taking the banks advice before i ever know about this place
Cheers : )
Carl.Hi Carl,
If the income (rent) you receive from the invetment property is greater then the deductible expenses such as interest, rates, etc then yes you will pay tax on the difference.
A quick calculation seems to indicate that the rent could possibly be higher then your expenses.
Rent: $560f/n x 26f/n = $14,560pa
Interest: $120k x 6% = $7,200 (will be higher this year since it was at 8.09% for a period)I don't know how much you will be deducting for rates, insurance, etc but unless it adds up to be more then $14,560pa you would pay tax on the difference because it will be added to your taxable income.
If you have a loan against your PPOR i would have been making P&I repayments on this loan all along and kept your IP at IO.
It is not too late to switch to IO repaymenys on the IP if you speak to your bank.6% on the new loan seems to be a pretty good deal.
Be careful that you are not being placed on a discounted rate which only lasts for 12months and then reverts to the standard variable rate which will be much higher.
Shane.
Hi Shane
thanks heaps that clears a fair bit up for me : )
FYI its CUA's basic 2 yr fixed rate, meaning no offset but my extra cash is in my PPOR offset anyway
i am also waiting to see what happens with rates in Dec before i lock anything in.
thanks for shedding some light on this for me, ill be crunching the numbers with the missus tonight
carl.Carl for my 2 cents worth i am unsure why you would paying down a IP with vigour when you have a non deductible PPOR debt.
By all means pay down investment debt if that is your strategy but NOT when you have other liabilities.
As Shane has mentioned you will now pay Tax on the rental income yet have less deductions by way of an interest expense.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Carl, you are throwing money away!
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
agree with the anothers here…yes it’s good to pay down debt- but there’s a diff btw good and bad debt.
Mind over matter.
It seems like you did a fix rate of 8.09% 4-5 years ago…do you want to go down the “fix” rate path again?
Regards
MichaelMick C | Shape Home Loans
http://www.shapehomeloans.com.au/
Email Me | Phone MeSame Banks. Better Rates. Served With a Passion.
Shape wrote:.It seems like you did a fix rate of 8.09% 4-5 years ago…do you want to go down the “fix” rate path again?
Regards
MichaelIf so, you’ll be getting a decent drop in that hefty rate. Three year fixed rates have dropped quite a bit with 5.99% on offer from a few.
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
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