Refinancing and Extending Back to 30 years

Brains trust I am looking at refinancing my IP loan as the advertised interest is lower than the interest I'm paying, loyalty fee so to speak. The loan is P&I and 20 years left at the moment. As such there is a fair chunk of money going to principle and not claimed as a cost at tax time. I'm happy to reduce principle however I do have a PPOR to pay off.
Question, if I refinanace am I better of extending the loan back out to thirty years?

As the amount is lower than first started the payments would reduce allowing me to use some of the rent to pay off my home. Secondly the new loan term would increase the interest portion of the repayments which will be advantages for tax time.

I am aware of Terry's equity transfer of splittinflg loans which is not really appropriate in this situation. Also I understand going IO would improve cash flow much better however I am a little conservative with this property and would like to maintain reducing principle.

 

Does your PPOR loan have an Offset?

 

Yes it does. The idea would be to leave more money to pay off ppor

 

I'm not an accountant - so please seek pro advice....but extending to 30 makes sense to me if you've got a PPOR debt.

You'd reduce the minimum repayments - and then can divert the extra cash to paying off your PPOR loan.

As long as the refi savings are diverted to your PPOR (and not spent on other stuff) I think it's a good idea.

Again - I'm not an accountant though! And this isn't advice - just an opinion.

Cheers

Jamie

 

It may make sense on paper but the ultimate goal is to be debt free so Id personally be reluctant to extend the term way back to 30 years. How would you rate yourself as a money manager/ how good at savings are you? If you are a good saver it may be worth doing if you are average or poor I wouldn't do it.

 

In that case, I would seriously think about going IO on the IP and deposit the principal component (as if the IP loan is P&I) into the PPOR’s Offset.

If the PPOR could/might become an IP some time in future, I would think about going IO on it and place the principal component (as if the PPOR loan is still P&I) into the PPOR’s Offset.

That way you are mirroring the paying down non-deductible debt and maximising your deductible debt.

To do this, one needs to have good financial discipline (i.e. treat the funds in the PPOR Offset as not yours).

 

If you've got a non-deductible debt (Owner Occupied Loan for example) then it may be more beneficial to extend the Investment loan to 30 years, even more beneficial to go IO if serviceability allows it, focus on paying down the non-deductible debt and then start paying off the investment debt. Seek advice re: your tax situation.

 

Calculate what the repayments would be if the loan was over 20 years and if it were 30 years. Take the 30 year option, but increase the repayments on your PPOR loan by the difference between the IP being 20 or 30 years.

Essentially this reduces your IP repayments, but channels the saving to paying down the non-deductible debt faster.

There may be other factors involved that haven't been taken into consideration.

 

Reduce payments on investment loan and pay off the main residence by the same amount will save you tax, but possibly cost you interest. Look at my loan shuffling strategy

 

I do have an offset account, but I do have a partner, so actually I don't have an offset account. I have my IP rent going into a seperate account and when the account has extra funds I transfer money over. Refinancing should allow money to build up quicker.