I have 3 loans off which 2 are for investment and one is residential. How would you manage the loans and which one would you target to pay off. Trying to understand how everyone manages their finances (hope its not too personal a question) and can learn from the experiences. Happy Monday
This would best with a one on one conversation - but if we're speaking generally, as Terry said, all income into the offset against your PPOR, and a credit card used for all purchases which get paid off each month out of offset funds. Taking it further, all IP expenses can be paid for with a line of credit (set up against equity in your home or IP's) and the cash you've saved stays in the offset which further reduces non-deductible debt.
We will call it the Morman Accelerated Debt Reduction Plan - I can see it now. General rule of thumb is to erode the personal non deductible debts before tackling the investment debt - same amount of debt reduction but more tax effective. Always exceptions to the rule however.
What Terry said - offset against non deductible debt, have all income directed to that. If you've got a credit card with rewards points - use it for expenses where you can. Pay it off each month before interest kicks in. If you plan on renting out your owner occ down the track - avoid paying down the loan and just park all cash in the offset. If you have no plans to rent out your PPOR in the future - smash the mortgage. Cheers Jamie
What if your partner doesn't want to add her funds into the offset account? Am i doomed? how do we convince our partner
Enjoy. Use it sensibly and they can be a great little financial tool. We usually rack up enough points to go towards a family holiday each year. Cheers Jamie
If you have equity in your home or investment properties, you can set up a Line of Credit against the equity (basically a new loan) that you can use to pay all your investment expenses like rates, maintenance and so on. All the interest on this is deductible so long as you ONLY use if for IP expenses. Then, because you're not paying cash for those expenses, the cash you would have used stays in your offset account reducing your PPOR debt. It's increasing your deductible debt and reducing your non-deductible debt.
What if I only have 1 IP and it was a 105% loan? Is money in my offset considered equity that I can set up a LOC for? Otherwise, is there any other way for me to borrow for these expenses or is there any point? I feel like if I'm borrowing to pay for the expenses then I will have to pay unnecessary extra interest on it rather than if I were to just pay cash.
If you have a 105% loan for the IP that's no problem if it's grown in the meantime. There amy be equity you can access. What about your PPOR? Any equity in that? The idea is that by using deductible debt to pay investment expenses, you can reduce your non-deductible debt. So after tax you should be well in front. Like I said before, you'd benefit from specific advice.
