Mortgage strategy with shares

Discussion in 'Share Investing Strategies, Theories & Education' started by purkulator, 19th Apr, 2021.

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  1. purkulator

    purkulator Well-Known Member

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    if you have reached your maximum serviceability but do have cash in offset on a PPOR, would it almost be “no brainer” to not invest in say an index fund such as VAS paying around 4% in dividends. Given it would be long term hold you are still 2% ahead of the interest rate (assuming this is PPOR), would be even more if its an IP as part of it would be deductible. Any additional growth would be a ‘bonus’ and off course in the short-medium run there is also the risk of a downturn.

    I thought about the other option is to use this cash to buy another house. But if you are near your serviceability ceiling, your options is to draw out equity from PPOR and/or use the PPOR offset funds to pay off the IP in full. Thats effectively the only option and you cannot use leverage to your advantage.

    Is there anything I’m missing here?
     
  2. Terry_w

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

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    If you were going to invest you would probably want to consider debt recycling the non-deductible debt.

    Not sure what you mean about using PPOR offset to pay off an IP. You would then be charged interest on your main residence which wouldn't be deductible. You could recycle the loan though and perhaps discharge the loan on the investment property. that should save interest and boost servicing - or if you can't service just use redraw on the investment property loan to invest later.
     
  3. purkulator

    purkulator Well-Known Member

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    In my example, I am assuming maximum serviceability is reached.
    So that means I have access to funds in offset and equity from the PPOR which is built up over time.
    If there is additional borrowing that is accessible, I agree that should be used towards the IP and most funds put towards the PPOR offset to reduce interest costs.
     
  4. Terry_w

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

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    You wouldn't be able to increase borrowings if serviceability is reached though.
    But you could still debt recycle and loan shuffle.
     
  5. purkulator

    purkulator Well-Known Member

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    Yep so thats why i am assuming i only have the option to use offset funds in ppor and equity that is built up over time. I don’t think debt recycling is possible in this scenario
     
  6. Terry_w

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

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    you can debt recycle without servicing and without equity. You couldn't use 'equity' without serviceability though.
     
  7. purkulator

    purkulator Well-Known Member

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    You completely lost me here
     
  8. Terry_w

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

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    think about it. what is debt recycling?
     
  9. purkulator

    purkulator Well-Known Member

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    So let me make an example. If I have a 2m loan and 500k in equity and 500k sitting in my offset and I only have this as my PPOR.
    I want to use this 500k for investing in shares because my interest rate is 2% and dividends is over 4%. I'm about 2% ahead doing it this way.
    Now if I have reached my serviceability limit, I will only have access to the 500k in offset and 500k in equity, correct? So effectively I can't buy anything over 1m or recycle anything
     
  10. Terry_w

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

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    no this is not correct
    if you have hit your serviceability limit you would only be able to debt recycle the cash as you cannot borrow any further. So $500k

    But even if your borrowing capacity was huge you would still be limited to 80 or 90% of the value of the property. $2.5mil x 80% = $2mil which is your current loan amount so you could not borrow any extra on top unless you were willing to pay LMI and even then up to about $250,000 less LMI.
     
  11. Blueskies

    Blueskies Well-Known Member

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    If you have $500k in PPOR offset you can most likely debt recycle very easily. Create new loan split for $500k in PPOR loan with redraw setup. Pay down, redraw, invest.

    You are talking about taking the $500k straight from offset and into shares, that would likely be a missed opportunity to debt recycle and improve deductions.
     
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