Downside of repaying IP Principal?

Hi HoppyM,

  Is there a downside to paying back the IP Principal in the interim or better to continue saving?

Sounds like you are in good shape !!   Well done.   Re “paying back IP principal”, it sounds like you are already set up to do just that.

Or, are you considering moving any extra savings in the Offsets to pay down the mortgages even more?  See, that latter move (to me) would not do you any good – in fact, could do quite the opposite.  Simply put, your Offsets are already minimising any Interest paid (as if the money HAS come off the Principal amount owing) and yet that money in Offset is YOURS to keep, and it can be removed at a moment’s notice.  This can be very useful if you have the “deal of a lifetime come your way” (or an emergency) and you need cash NOW.   So by keeping it in the Offset, you get the best of both worlds.

To me “Saving in your Offset” makes a lot of sense.   One thing I’d suggest though is to look at moving all Offset monies to be against ONE property (simply because this can be against the mortgage with the highest interest rate, AND it means being able to remove a LARGE chunk of change with one transaction when needed).   It is all about staying flexible in my eyes.

Let’s see what others think too…..  ;)

Benny

I guess the down sides are:

a) Tax – what if you need the money to buy a kidney or fly around the world?

You might be able to borrow, but the interest won’t be deductible.

b) risk

What if the worst happens, and you have a cash flow crisis?

c) retirement

Retirement could be delayed if your rents are not enough

d) Helping kids

What if you wanted to help one of your kids into a house – you could interest free lend them and claim the interest on your investment loans giving you great deductions and save you tax while helping them.

etc

e) You may not be able to borrow in the future

keeping the cash in the offset accounts saves you interest but also makes that cash available for future investments too. If you paid a loan down and could not borrow any more you won’t be able to invest like you could if you hadn’t paid the loan down.

Hi Hoppy,

After reading the other replies and thinking further about your excellent situation, I’m wondering if it might be beneficial to pay out one or two of the seven IPs.  I’m thinking there of keeping flexible ahead of possible troubled times.  e.g. Have you heard about “bail in laws” that I’ve been hearing about for about a year now – where banks may simply “take” your money if they run into trouble.    Will things get to that?  I don’t know, but then I hadn’t considered ever seeing Interest Rates at all-time lows either….

So, maybe there is some merit in choosing one or two of those IP’s that you would plan to keep over the long term (perhaps the location is likely to see better Capital Growth than others, or perhaps their return is higher than others) and use their Offset money to pay them off completely.  That means you can then retain them despite any adverse future financial situations that might arise.  It also provides diversity of your financial position too.  The Banks could not “bail in the cash from those Offsets” if it’s been used to pay off the house and the IP is now YOURS.

Interesting points from Steve too – you get into debt to get out of it, but also an alternative thought that it is better to have cash and not need it.  i.e. you have CHOICE – do you pay some off and keep the cash in the Offsets of all the others?   If so, which ones, and how many of them do you pay off?   Like two bob each way eh?   Can’t be bad, and your situation leaves you open to making your really good position even more secure.

Benny