Debt recycling when offset amount equals to loan amount

Discussion in 'General Investing Discussion' started by gkp__, 12th Aug, 2019.

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  1. gkp__

    gkp__ New Member

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    Hi All,

    I have been reading a lot regarding Debt Recycling strategy. I need your expert advice on 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 spoke to bank and requested if they can split the main PPOR loan into two. Eg
    - PPOR Loan A 180k
    - New split loan PPOR Loan B 50k (with redraw facility and offset account)

    I would like to pay off this split loan 50k using the offset funds and then redraw to invest in LICs/ETFs. Any dividend income will go into the offset account of the PPOR Loan A.

    Are there any draw backs with this approach. I am I missing anything important to consider. Please help.

    Thanks
     
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  2. Terry_w

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

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    Lots of issues to consider sounds like you are after specific advice so best to see a tax agent and lawyer.

    Consider whether the interest would be deductible, ownership structure for the shares, whether the property might be rented out at a later date, estate planning consequences etc.
     
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  3. gkp__

    gkp__ New Member

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    Thanks Terry.
    Will speak to the tax agent.
    I do have plans to convert the property as investment property later on.
     
  4. Terry_w

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

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    In that case it may be better not to pay the loan down extra.