Discharging Mortgages

I have 2 x IPs located in Sydney and Newcastle which have technically been paid off ie. loan amount = offset amount. I am thinking about discharging both mortgages which currently with wealth package CBA. The disadvantage would be 1.6x% discount would not be applied to future borrowing. However, I am able to increase my borrowing power.

What would most people do in this circumstances?

 

Why not just recycle the loans with the offset cash, and keep your discount?

The only reason this may not be idea is if the term of the loan is now really short. If you've still got a decent length of time on them it should make more sense to reuse the existing borrowing.

 

How much other borrowings do you have?
Are you looking to get more borrowings? If so, do these mortgages make the difference between a yes/no answer from a lender?
Can you re-use them?

These answers should point you in the right direction.

 

What is the 1.6% discount you are referring to?

 

@Jess Peletier nailed it.

 

I also ask why!

If you pay the loans out you won't have access to your cash.

Keeping them mortgaged provides some asset protection.

If it is for serviceability reasons you could just use the cash instead.

but there are different estate planning consequences especially at death.

 

@Anthony Brew Wealth package discount

 

Thanks @Jess Peletier

My thoughts are to increase my borrowing's power to buy more IPs in the future. I still have > 27 years in to the loan as I have just refinanced it 2 years ago

 

1.60% discount is no longer around, be nice to hold onto that.

What @Jess Peletier is saying is that you already have borrowing power - paydown loan, tax funds back out, use for investment purchases

 

@D.T. My current loan is at 1.6 millions. I am saving some cash to buy IP in Sydney.

 

@Terry_w I understand that I am unable to access the future cash but serviceability is an issue. All my IPs are purchased within family trusts

 

In this day and age, existing lending is gold. There is no point paying off a loan with a great discount, only to re-apply for a new loan. Re-use what you have, then apply for more if you need it. This is especially worthwhile if any of the existing loans are non-deductible.

Speak to your accountant about how to make it work in regard to the trusts - there may need to be some loan agreements set up or something.

 

Can the trustee use redraw?

 

How does an offset affect asset protection. I would think its a high risk for the cash and yes asset strategy for the loan ?? Its cash. eg ATO can take it. Wife can take it and leave the country. A Nigerean bandit could take it.

 

I don't think i said an offset affects asset protection - but it does in several senses.
a) bankruptcy. Money in an offset can be easily accessed!
b) death. An offset account is cash so the cash will move differently than the property in many instances.

Example
Bart has $500,000 valued property with $400,000 in an offset account. He leaves the property to the sister, Lisa, and the residual of his estate to his mother, Marg.

Marg will get $400,000 plus his only possession, a skateboard, and Lisa will get a property with a $400,000 loan = $100,000

but had he paid off the property in full the Marg would get the skate board and Lisa would get a $500,000 property.

 

Keeping them mortgaged provides some asset protection.

If you were commenting on this statement - a mortgaged property is harder to fraudulently transfer than an unencumbered one.

 

I don't know whether or not the trustee can use redraw. My concern is about parking so much cash in the offset account.

 

I don't know whether I can substitute the loan within the trust. I am quite hesitant to discharge the loan due to the fact that I may not be able to obtain 1.6x% discount with CBA. My concern is about parking so much cash in the offset account which does not help with asset protection nor government guarantee.

 

What is your concern?
The govt guarantee perhaps?
Is it your money or the trust's money?
You could lend the trustee the money at 0% (providing you are not the trustee)