Debt recycling and split loan

Discussion in 'Share Investing Strategies, Theories & Education' started by gkp, 13th Aug, 2019.

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  1. gkp

    gkp Well-Known Member

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    Melbourne
    Hi All,

    I have been reading a lot regarding Debt Recycling strategy.

    Here is my situation
    PPOR loan - 230k (P+I, 3.5%)
    Offset account linked to PPOR - 230k.
    Basically, I am not paying interest on the PPOR loan. The interest component of the loan is going towards reducing the principal. I can leave this set up as is and eventually the loan gets paid off in few years.

    I can request the bank to split the main PPOR loan into two. Eg
    - PPOR Loan A 130k
    - New split loan PPOR Loan B 100k (with redraw facility and offset account)

    I would like to pay off this split loan 100k using the offset funds and then redraw every month 10k and buy units in LICs/ETFs. (Dollar cost averaging).

    Any dividend income will go into the offset account of the PPOR Loan A.
    Are there any draw backs with this approach. Am I missing anything important to consider. Please advice any pros or cons with this approach.

    Thanks
     
  2. gkp

    gkp Well-Known Member

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    @Terry_w - can you please provide some inputs on this.

    Thanks
     
  3. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker Business Plus Member

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    Check out my posts in the tax section on debt recycling and splitting loans. And get some specific tax advice.
     
  4. NG.

    NG. Active Member

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    @gkp any reason why u want to only do $100k? my guess is the remaining amount is for a non-deductible purpose?

    from my opinion, only thing to consider is make sure you buy shares/etfs etc that are returning more than your interest rate!

    If it was me, I would be doing more, and aim to set up a facility as much as you can borrow pending cash flow / equity!
     
    ChrisP73 likes this.
  5. inbaaa

    inbaaa Member

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    @gkp or anyone else: In order for $100k Debt-Recyling loan interest to be tax-deductible, shouldnt the dividend income be directly credited to the (non-tax deductible) Home loan? Or does it not matter i.e. the dividend income can be credited to any offset account.
     
  6. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker Business Plus Member

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    It doesnt matter.
     
  7. inbaaa

    inbaaa Member

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    Terry_w likes this.