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now that banks increased the interest rate is it better to pay off IP loan first?

Discussion in 'Accounting & Tax' started by fullylucky, 19th Aug, 2015.

  1. fullylucky

    fullylucky Well-Known Member

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    Now that banks increased the interest rate by 0.27% for IP loan.

    Is it better to pay down the IP down (less interest to offset income.)

    or still better to pay down your own PpoR loan first?

    Has anyone done any calculations on this?

    (CBA inreased my investment loan on 10 August.)
     
  2. Tony Fleming

    Tony Fleming Well-Known Member Business Member

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    I'd say its still a safer bet to pay down your non deductible debt. It would depend on your goals and financial situation. I currently am paying of an IP before my current ppor only because ill be upgrading in a few years and ppor will switch to an IP.
     
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  3. EN710

    EN710 Well-Known Member

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    Hmmm - this is just rough calculation on my head
    $24000 per year interest on investment loan is tax deductible ~ 30% back ~ $8000 = $16000
    $22000 per year interest on your PPOR is not tax deductible = $22000
     
  4. skater

    skater Capitalist Premium Member

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    It's usually best to get rid of non-deductible debt before deductible debt.
     
  5. Hodor

    Hodor Well-Known Member

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    Better to pay off ppor debt by a big margin still.
     
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  6. legallyblonde

    legallyblonde Well-Known Member

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    Non-deductible debt first! Hands down!
     
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  7. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    A 1% increase in rates on IP v's a home is still just a 20% increase. The tax effect of deductibility exceeds 33% for most taxpayers based on their marginal tax rate. I would still favour non-ded debt.
     
  8. spludgey

    spludgey Well-Known Member

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    Depends on your marginal tax rate. If you have more than $18,600 (from memory) of taxable income per year, you're better off paying down the PPoR.
     
  9. fullylucky

    fullylucky Well-Known Member

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    THANKS everyone for confirming this. I will continue paying down PPOR loan.
     
  10. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    Credit cards first (higher rate) then PPOR

    A common question I am asked is should I pay off my HELP debt early?? Generally no if there is a PPOR debt. The HELP debt has a low rate of indexation and is also non-deductible. Also unless you tell a lender your HELP debt its a private debt and balance is unknown. Doesnt always count in a credit check (but can).

    Another one is a tax debt. I dont know many lenders who see a tax debt as a positive. Best repaid as its basically a on demand debt. I'm often asked to confirm taxpayer tax debts = zero by a lender to give their client approval.
     
  11. Sonamic

    Sonamic Well-Known Member

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    This is when an offset is of most benefit. If you plan on staying in your PPOR long term, pay it down. If not, why not leave the cash in your offset against PPOR as if paid down? Then if you decide to upgrade/downsize later on you have your Deposit in cash in your offset and your current PPOR becomes next IP.

    Higher IP Rates just means more to Claim. Yes you have to have the money there in the first instance, but that is how the game is played is it not?