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Monday Morning's Silly Question

Discussion in 'Property Finance' started by Allgood, 9th May, 2016.

  1. Allgood

    Allgood Well-Known Member

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    Hi all,

    Okay, file this one under the 'silly questions' but please help my weary brain on a Monday morning.

    I know people always say to pay down personal debt before deductable debt and I understand the reasons why. Say all my loans are IO and I have an additional $500 week to pay off debt with a strategy to have all IPs and PPOR paid off in 25 years.

    Here's the silly question... If I pay off the PPOR at an additional $500 per week until its paid off, and then turn my attention to IP debt and contribute $500 a week to that debt, would it take the same amount of time as spreading the $500 per week across all loans so they are all being paid down from day 1?

    Go...!
     
  2. EN710

    EN710 Well-Known Member

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    Sooo.. technically speaking you could have pay additional $1000 per week on PPOR?

    Assuming PPOR 500K loan at 6% (I&P as can't find IO calculator for this) and additional $500 a week - paid in 11 years ish instead of 25

    Assuming PPOR 500K loan at 6% (I&P as can't find IO calculator for this) and additional $1000 a week - paid off in 8 years

    Timing would be similar with IP with $500 a week not considering tax deduction.
     
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  3. neK

    neK Well-Known Member

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    No. There would be tax deductions that would result in slighty faster result of paying down debt if you hit the ppr instead of the the ip.

    Add to that the extra sense of security you get knowing that the roof over your head is paid off.
     
    Last edited: 9th May, 2016
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  4. Allgood

    Allgood Well-Known Member

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    Thanks,
    @EN710 , no sorry I worded it poorly.

    Option 1: An additional $500 per week which would all go towards PPOR (non deductable) and once the PPOR was paid off direct $500 per week towards IP's (deductable).

    OR

    Option 2: $500 split across PPOR and IPs from day 1 so an equal percentage was being paid off each year.
     
  5. Allgood

    Allgood Well-Known Member

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    Ok so the simple mathematics means both options would be the same timeframe, except the tax deductions would speed up the process if IP paid first, and greater security with PPOR paid off.

    Thanks!
     
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  6. EN710

    EN710 Well-Known Member

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    Tax deduction is more if PPOR paid first
     
  7. Allgood

    Allgood Well-Known Member

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    Arghhh, that's what I meant, sorry!
     
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  8. EN710

    EN710 Well-Known Member

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    Lol it's ok, Monday morning :rolleyes:
     
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  9. Scott No Mates

    Scott No Mates Well-Known Member

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    Not quite - if you pay the ppor/ non-deductible debt first, then your ip.

    Time frame would be the same but paying ppor first leaves you more $.
     
  10. bob shovel

    bob shovel Well-Known Member

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    Was it the "brokers annual ball" on the weekend?? Where are they all? Sickies galore by the looks :D
     
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  11. skater

    skater Capitalist Premium Member

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    Not really. From where I'm standing, if I was to go down that path, here is what I would do. Assumptions are that each loan is being paid down at the rate of $500pw for ease of calculation.

    1) $500 extra per week towards the PPOR (total payment $1000 per week)
    2) When PPOR is paid out, $500 per week extra PLUS what I was previously paying on the PPOR to the IP that is costing you the highest in interest rates (total payment $1500 per week)
    3) When the above IP is paid out do the same with the next highest interest rate loan (total payment $2000 per week)
    4) As above, the total repayment now becomes $2500 per week. Continue until all debt is paid out.

    By targeting the loans with the highest interest rate first, you can speed up the process a little bit, and you also have the phsycological advantage as you pay out each separate loan.
     
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  12. Allgood

    Allgood Well-Known Member

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    Probably dealing with more important issues than my silly questions :cool:
     
  13. Allgood

    Allgood Well-Known Member

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    Ahuh! That sounds like a great approach, a great way to look at it. Thanks!
     
  14. Tranquilo

    Tranquilo Well-Known Member Premium Member

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    I would pay down the 500 extra in the ppor offset, dont know what's going to happen in the future.
     
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  15. bob shovel

    bob shovel Well-Known Member

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    No. good question! no such thing as a silly question... just silly people or is it answers. ?? Oh well

    I'd do what skater said, just make sure it's going into an offset somewhere. .. I'll send you my details ;)
     
    Last edited: 9th May, 2016
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  16. Greyghost

    Greyghost Well-Known Member

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    Would take longer. Compounding effect..
     
  17. Allgood

    Allgood Well-Known Member

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    What would take longer?
     
  18. skater

    skater Capitalist Premium Member

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    Hey wait! I suggested it! I can give you several offsets to choose from.:D
     
  19. Allgood

    Allgood Well-Known Member

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    Once I've paid all mine off I'll let you know and you can fight for it then! Wouldn't hold my breath if I was you. :D
     
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  20. Marg4000

    Marg4000 Well-Known Member

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    Don't pay down the loan. Put the money in an offset account attached to your PPOR. When the amount in the offset equals the amount of the loan then transfer the monthly payment from the offset.
    Marg
     
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