Debt recycling - How small is too small for a loan split

Discussion in 'Investment Strategy' started by Niche, 7th Apr, 2020.

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  1. Niche

    Niche Well-Known Member

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    Hi all,

    I am aware that I may be in the process of asking how long is a piece of string but I am going to ask it anyway.

    How early (time, dollar figure or percentage wise) should you start the whole debt recycling process. I have only just settled on my new PPR a few weeks ago so only really have my emergency buffer at this point in terms of current cash but I am keen to start debt recycling and want to know if there is some goal I should have for when it is worthwhile.

    Realistically it will take about a year for me to have around 10k saved (plus any principal I have paid off) to give some context
     
  2. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member

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    comes down to savings capacity your lender and Lvr

    ta
    rolf
     
  3. Terry_w

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

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    It will all depend on the loan product and the amount you are going to invest.

    Putting $500 extra into a loan and pulling it out again to invest in an income producing asset is still debt recycling.
     
  4. Niche

    Niche Well-Known Member

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    Even though that is debt recycling I am assuming you are better off to create a proper loan split to keep the loan purpose from getting messy and keeping it simple for my acocuntact?
     
  5. Terry_w

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

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    It depends.

    In an ideal world you would, but generally you need a $10k to $20k minimum to split. In the meantime you could still debt recycle and apportion the interest so you are getting some extra tax benefits along the way.

    Later on you split when the amount is enough.
     
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  6. Jess Peletier

    Jess Peletier Mortgages, Finance & Property Strategy Aust Wide Business Member

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    What if the loan is P&I? Mixed loan.
     
  7. Terry_w

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

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    Yes it will be mixed. But interest on a mixed loan can still be claimed in proportion and a mixed loan can be unmixed later. Not ideal but it will increase deductions, but by not as much as splitting would.
     
  8. Jess Peletier

    Jess Peletier Mortgages, Finance & Property Strategy Aust Wide Business Member

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    So, to quote the master - you can unmix orange juice and urine? ;)
     
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  9. Terry_w

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

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    Silverson likes this.
  10. Jess Peletier

    Jess Peletier Mortgages, Finance & Property Strategy Aust Wide Business Member

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    Terry_w likes this.
  11. Terry_w

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

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    As they drunk their orange juice.
     
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  12. Jess Peletier

    Jess Peletier Mortgages, Finance & Property Strategy Aust Wide Business Member

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    :D:D:D Their (hopefully pure, unmixed) orange juice!
     
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  13. Never giveup

    Never giveup Well-Known Member

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    If one makes few splits initially - will Bank allow to change the loan type

    Example:

    Split A 500K with Offset
    Split B 50K
    Split C 50K
    Split D 50K
    Split E 30K

    (Above all P+I)

    Split F 200K - IO

    Now 6 months down the road I have saved 27K
    Will the bank allow.me to change that 30K (or bit less due to being P+I) to IO so I can deposit and redraw that 27K and so on?
     
  14. Terry_w

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

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    Generally not without a full reassessment.
     
  15. Never giveup

    Never giveup Well-Known Member

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    Hummm perhaps couple of splits can be IO then but bit risky as circumstances can chsnge the too much out of pocket.
     
  16. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member

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    Start with the end in mind.................simples

    ta

    rolf