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Paying interest on IP Loan

Discussion in 'Accounting & Tax' started by Frosty123, 27th Nov, 2015.

  1. Frosty123

    Frosty123 Well-Known Member

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    Hi,

    Using equity in my PPOR, a loan was set up with funds drawn down into a new offset account. These funds were used to purchase a new IP.
    After the purchase, I still have some funds left in the offset account. Should I be paying the loan setup for the deposit using the excess funds left over in the offset until it runs out? (i.e increasing the interest payable each month)? Or should I be used the funds in my PPOR Offset account to pay the loan each month?

    Thanks

    Frosty
     
  2. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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  3. Frosty123

    Frosty123 Well-Known Member

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    Maybe I haven't explained myself well...
    My loan has been setup in the same way as one of your previous posts:
    Terryw’s Ideal Loan Structure

    I had enough equity in my PPOR to create a new loan using the PPOR as security. The funds were drawn down into a new offset account against that loan (not mixed with anything else).
    Those funds in the offset account have been used for the deposit on a new IP. Don't think I've mixed loans :confused: Well I hope not.
    My confusion arises from what happens after using the funds for a deposit. What money should I be using to pay off the loan when it is not being completely offset by the drawn down funds.

    Hope that makes sense :)
     
  4. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    That is better than I first thought. Still not a good idea to do that way, especially with funds left over. Why not use that funds to pay for rates etc on the investment property.
     
  5. Frosty123

    Frosty123 Well-Known Member

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    I could use them to pay rates, insurance etc. Just not sure how I should be paying the interest on the loan. Am I best to just pay it using cash in my PPOR offset account (where my income goes into)?
     
  6. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Yes, don't pay the interest from the borrowed money, but just from the cash.
     
  7. Frosty123

    Frosty123 Well-Known Member

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    Great thanks! :)
    I must say, your posts are what makes this forum so useful for those learning the ropes. Much appreciated.
     
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