Best loan to throw my savings into redraw

Hi
Bit of a silly question but I want to be sure and ensure I am understanding it and if possible learn how to work it out for myself

We have 3 investment loans and one OC loan

We have 100k in savings

OC loan is 719,000 at 2.73% P&I - it has a 15k offset account limit with redraw
Investment loan 1 - 218000 at 3.10% P&I - 50k offset limit and redraw
Investment loan 2 - 403,000 at 3.7 I/O - No offset. Has redraw
Investment loan 3 (split into 2):
a - 217,000 3.99% P&I
b - 76,000 3.01% P&I


Using my savings to put into redraw and offset how do I work out which is the best account to put them in? The Main residence due to no tax deductions or one of the higher interest rate investment loans?

How do you calculate this with including tax deductions and offset account discounts?

 

as a general rule you should
a) never pay down an investment loan,
b) offset owner occ before an investment
c) store cash in an owner occ offset before investing by by
d) splitting the owner occ loan, repaying one split and then redrawing to invest.

 

Thanks Terry

a) never pay down an investment loan,
1.f you find a lower P&I interest rate than an interest only rate is this still a better option for an investment loan. Just dont make extra repayments?
2. I assuming this is also because you get tax deductions

I still have to do D
wish I knew this before I opened the loan
My Occ interest rate is currently 2.73% P&I and my bank said they can only split this to have one at a higher interest rate (3.14%) and fixed... Would prefer variable but this might not matter if I am plan to pay it down to $1

Would be still interested in calculating how much I save though

 

To work it out on your own it's your interest rate X your tax bracket then minus that from the rate. An example is your investment loan 2 is 3.7and say your tax bracket is 35% so it's
3.7 X 0.35 is 1.295
3.7 - 1.295 is 2.40
So actual interest you're paying after tax is 2.4 which is less than your OC loan.
Hope that helps.

Also to answer your question. If the P+I loan is considerably less than yes I would go with that over interest only.

 

Thank you!
Thats why we dont worry about paying down investment loan. After tax its less then our occ loan

 

If you have PPOR debt then nothing is tax deductible, so you would be wise to offset all monies as it is after tax money that you need to pay in P&I, very slow and hard to do.
If at the same time you have Investments the interest is tax deductible but not the principal, hence you optimize your cash-flow position, why wouldn't you use that money into offset against PPOR (that is if you make Investments IO the principal you are forgoing can be allocated to paying down PPOR loan via offset or other non-deductible debts).
Also in 20 years investing to date I have not paid a dollar of Principal on Investments? Why, I am better off keeping this in offsets, as buffers, for unexpected repairs or circumstances, for reinvesting, for flexibility, for having the control instead the banks via redraw, for many reasons.
It not just about the lowest interest rates, it is about your overall structure and numbers and outcomes. You could pay more in IO rate which is fully tax deductible for investment and have better outcome in your overall financial situation, then lower P&I rate.
However you need someone to do the numbers for you to see that and to understand (ask your broker or accountant to help you to illustrate).
You see you must be clear on your strategy, numbers and what you want to achieve. If you wish to force save and pay off quicker then P&I, if you wish to grow your asset base with many investments then IO. You need to be clear and I don't think you are?
See someone to help you to understand your end goal.

 

Thanks
I am already putting everything to offset my OCC, Just wanted to confirm some things

But with the second half of your reply. I am still learning this stuff. Our goal is to grow an asset base for a comfortable retirement.
I will have to talk to someone to do the numbers for me I think
I have read on this forum at the moment P&I is better then I/O - I am assuming its due to banks getting tighter on investment loans and upping the rates

 

That might be old news. The spread is getting smaller.

 

Be careful what you read and take out of context and who you take advise from. Take it from those that 'walk the talk - not just talk', distinguish between fact and opinion. What may suit one may not suit another.
It is my fact not opinion, in the last 20 years I have never paid P&I on IPs ONLY IO and I have grown 8 digits portfolio via IPs with very low LVRs because to date I have not paid a dollar of principal from investments. PPOR is paid off and then utilised as 'lazy money' meaning reinvested, so I do not have any undetectable debt.
Just re-fixing, re-financing now, pulling out extra equity, structuring to take advantage of low IO rates, pulling out a title/security out too (without paying a dollar of in principal - as I think I am working more on the exit strategy now).
It takes time and experience so take it slow but as I just posted previously in some post after this one, you must be clear what you want to achieve from property investing and what your investment strategy is to be to advance past 2 IPs like most people in Australia have.

 

Hence why most in Australia own only one or two IPs.
You have to be clear what you wish to achieve from property and what investment strategy you will adopt.
Read more to understand that. Educate yourself first.

There is a difference between PPOR and IP, PPOR is emotional decision where you want to live, how far to commute, etc... whereas IP is investment decision - I never plan to live in many of my IPs, there I supply a product, roof over head to potential clients/customers/people needing that (so numbers game).

1. What do you want to achieve from your property investing DEFINE THAT in numbers in $ amounts? You need to be clear, define that in numbers. For example I want to generate gross $50,000 p.a. Or I want to replace my current income of $80,000 p.a. Then work backwards from there, if we assume 4% gross yield or 3% net yield (assuming 1% to maintain costs), then to generate say $50K gross you would need $1,250,000 of property generating 4% gross yield unencumbered, paid off.

2. What investment strategy will you adopt to get there DEFINE THAT, clearly? Will you buy in QLD only, how far say in middle rings up to 12 kms, what... house and land, with cosmetic renovation potential, or in 3 states say NSW, VIC and QLD, will you buy 2 Bed 1 Bath 1 Car garage units in lifestyle suburbs in SYD and VIC only, will you.....many ways to invest into property.
So do you get a picture, I ask so many people why are they investing into property and I hear reasons such as:
- maybe for retirement
- maybe one day I will live there
- maybe I will leave to my kids
- maybe I will leave as an example for my kids
- maybe to replace my income
- maybe to sell for holidays
ALL these reasons are great but need to define what all that means. Be specific and separate PPOR and IPs or at least be clear on differences.
I treat my property investing as a business you need to do the same if you wish to succeed.'
Best of luck in what you decide.

 

Totally agree but I would expand these to include shares and cash (cashflow, cash reserves and debt) as property, shares and cash are all interrelated and all contribute to Net Worth.

 

Its not all about tax either. You have to consider cash flow and serviceability - you can borrow more on PI loans than on IO loans, for example, but it will cost you cash flow in the short term. Keeping too much cash in an offset account also costs you money.