Considerations when starting to pay down tax deductible debt.

Discussion in 'Investment Strategy' started by Skinman, 23rd Jul, 2018.

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  1. Skinman

    Skinman Well-Known Member

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    Hi All,

    I’m about to reach the point where my offset against my home loan is equal to the balance of the loan and am therefore thinking about where my savings / excess income is deposited next.

    I have a number of investment loans and was keen to hear what others think in terms of criteria to choose which one I start offsetting against first, such as:

    Interest rate?
    Remaining I/O period?
    Standalone or x collateralised?
    Tier 1 or Tier 2 lender?
    The property itself growth v cashflow?
    Or any others I may have missed.

    General strategy has been buy and hold a mixture of growth and CF props with the intention to sell of what’s required at retirement to generate a passive income with no remaining debt.

    Thanks in advance for any ideas / opinions.
     
  2. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Ownership structure
    highest rate
    shortest term
    redraw facility
    whether to actually pay any extra off at all, or leave in offset
    Serviceability
    a possibility you may move into one - even a slim poss
    possibility of selling one
    etc
     
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  3. Skinman

    Skinman Well-Known Member

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    Thanks Terry in your opinion would possibility of selling or moving into one increase the appeal of paying off or offsetting over the others?
     
  4. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Why are you wanting to pay loans down at all? Is it for serviceability reasons?
     
  5. Skinman

    Skinman Well-Known Member

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    I just want to continue to reduce debt or increase my buffer. I may just put into an offset rather than actually pay anything down. Serviceability is one factor as I have now hit my limit with the big 4 and Pepper so I think my only other option would be liberty but I’m a bit worried about their rates.
     
  6. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Well, i would keep it in the offset in the first instance. If you loan is PI this will increase the rate at which it is paid off. If you want to buy more property reassess and consider paying down a loan.
     
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  7. Skinman

    Skinman Well-Known Member

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    Thanks Terry appreciate your opinion. With that in mind would it be advantageous to start offsetting something I’m more likely to sell / move into in the future or something I’m likely to hold as an IP longer term?
     
  8. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    I am not sure. if you pay off something you are going to sell the reducing of the loan amount may not affect serviceability - but you could then always use the proceeds to pay off the remaining loans.

    Another thing to consider is the length of the remaining loan terms. Paying off a longer loan rather than a shorter loan will result different outcomes - not sure what without thinking about it more though.
     
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  9. Skinman

    Skinman Well-Known Member

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    Thanks again i appreciate your thought.
     
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