Debt Recycling with CBA & P&I

Reading more and more about debt recycling has made me even more curious. Say $1m P&I loan with CBA, 30% var (300k), 70% fix for 2 years (700k) on a PPOR.

1. Does it only makes sense to keep 300k variable if you are able to save that amount over 2 years (fixed period of the 700k)? No advantages of making it higher if you can't save more right?

Issues i don't understand with a P&I loan:

2. Is there a benefit of splitting the 300k into 6 50k splits from the beginning of the loan? Only downside I can see doing it later is that you wouldn't be able to redraw the full 300k, because after a few payments, you would have paid off some of the principle from the 300k, say 5k. So then you would only be able do 5x50k split and 1x45k split.

3. Lets say you have the 6x50k splits. You paydown one of the splits (A) slowly to a balance of $100, and redraw 49900 to invest in shares. Over time you are paying down that split anyway with P&I, but there is no way to redirect payments into into the
rest of the 5 splits instead right? (Because you don't really want to pay down split A)?

3a) What happens once you've paid down split A (with the minimum p&I repayments)? The funds you have bought shares with are all paid back. So there is no deductiblility benefit anymore?

3b) From 3a) would you just redraw again, buy another bundle of 49900 shares? Then the first lot of the 49900 have no deductions, but the second would?

4. Say you bought 50k worth of shares from one of the splits. Shares grew to 90k. You decide to sell 40k worth of shares. Do you have to pay down the 50k split by 40k? Otherwise are you able to keep the 50k split open and deduct the full interest payments?

 

yep my thoughts too, but in this case not selling the whole income producing asset. Only 40k out of 90k. But perhaps then deductibility is apportioned to 5/9 * 49900 being deductible.

 

@costanza Not a tax guy / not advice etc but think about it;

1 yep

2 yep

3 You seem to be forgetting if all splits are still P&I they are all being paid down so will all reduce equally if paying the minimum P&I repayments (with no offset).
If you want to make extra repayments - suggest direct them towards non-deductible (likely highest after-tax cost) loans/splits.

3a yes if you’ve paid off the loan (after 5,10, 25 years etc) there is no interest to deduct, so you can’t claim interest that doesn’t exist

3b Only if redraw is available

4 if you have sold all/part of your tax deductible investment you can’t keep claiming 100% of the interest. See Terry’s tax tips as he has a tip
covering this.


Again just treat as a random on the forum so suggest you get advice regarding your proposed structures & investments.

Good luck