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Paying off a loan

Discussion in 'Property Finance' started by Tony Fleming, 16th Oct, 2015.

  1. Tony Fleming

    Tony Fleming Well-Known Member Business Member

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    Hi everyone in a few weeks I'll have paid of one of my IPs. I want to have the money available in case of emergencies. So the plan was to have the balance remaining as a months repayment and then each month redraw that amount out so the loan is still open. My plan was than to change another IP to principal and interest and have an offset account. The remaining balance of the first property would still be on my credit file wouldn't it unless I decided to pay it off properly.
     
  2. Watson1

    Watson1 Well-Known Member

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    yep if its available redraw, you need to assume to full debt going forward as it would show up on your credit bureau report when the lender checks.

    Also be careful, some lenders automatically close your loan if you 'pay out' the loan when you net loan owing is zero and the funds are sitting in the loan. Just need to check with your lender.
     
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  3. EN710

    EN710 Well-Known Member

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    Sounds like there might be potential Tax issue (if you actually care about it)?
     
  4. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    Possibly a better way to do it would be to establish a line of credit against the paid down IP - that way the balance can fluctuate with no issue and you can decide on the loan limit - there's no point having an undrawn $500k loan on your liability column if you don't need it (particularly if you're hoping to buy more IP's).

    Even better, set up 2 LoC's so you can use one for deductible and one for non-deductible expenses.
     
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  5. Tony Fleming

    Tony Fleming Well-Known Member Business Member

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    i'll look into it my current understanding that once you've paid money into the loan(it's my cheapest loan so I didn't worry with an offset) you can't touch it again as it won't be deductible debt. So this or next month sho'd be tje last deductible debt available. Any tax gurus know the solution?

    Thanks Jess i'll look into this :)
     
  6. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Don't pay off a loan, use an offset instead.
     
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  7. Tony Fleming

    Tony Fleming Well-Known Member Business Member

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    It was such a small loan though :p
     
  8. Travelbug

    Travelbug Well-Known Member

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    It doesn't make sense to have a loan with such a small amount available. What can you do with it? You would be better off getting a LOC against the IP to use for future purchases.
    Do not change the other loan to P &I, instead have interest only and put excess funds into the offset. You then have this money available in the future without losing tax deductibility. That is what Terry was talking about, not the small loan.
     
  9. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    How big was it?