1 million bucks in the bank.

Hi guys, I have $1M cash in the bank which I am using to offset $1M of IP loans - effectively paying zero interest. We are building a new house(PPOR knockover\rebuild) which is going to cost us $1M after landscaping, new furniture, etc. My wife and I are in a bit of a pickle. She wants to use $500K cash and borrow $500K from the bank. I want to borrow the whole amount ($1M), as then we can fully offset the new home loan and pay zero interest on it, and then claim expenses on the $1M worth of IP loans, which is a more tax effective approach. Any advantages to sacrificing $500K cash? I'm struggling to see the point. Thoughts?

 

Borrow $500k and use $500k cash for the PPOR.
Then place the remaining $500k into the PPOR offset. You'd still be paying zero interest on the PPOR and getting $1mil in deductions from the IP's.

Do you really need $1mil cash sitting in offsets? Do you have other plans for the money?

 

If its a forever home then the offset makes less sense. Using a offset v $1m so net debt is $500K makes ideal sense if there is ANY prospect of ever renting it out. However I guess then you will regret the choice of joint of 50/50 ownership as most do at a later date. (eg Your wife doesnt work and you have high income. Her 50% of the loss could be valueless)

 

Will this new PPOR absolutely be your forever home? Or is there any possibility at all that you may want to rent it out in the future?
Because there lays your answer.

If you plan on growing old and dying there or selling if /when you move out, the go the 500 / 500 split.

If it may possibly at some point become a rental, borrow the full amount and sit the cash in the offset.