Refinancing - Investment Loan Term

Hello,

My sister and I built an investment property 5 years ago. She wants to sell her 50% so I am now in the process of refinancing the loan and buying her out of her share. Does it make much difference if I keep the new loan at 25year term, or go back up to a 30 year term?
I know repayments will be higher on 25 years, but am I better off having higher repayments (and therefore more negative gearing tax benefits), or putting the $$ saved from lower repayments (30 year term) into my PPOR offset account and keeping the investment loan higher?

Thanks,
Cassie

 

The loan will cost you less in the long term if you refinance with the 25 year loan term. I've put together a calculator which compares the two and the negative gearing difference is almost nothing when compared to the extra 5 years of repayments.

However you'd likely be better off overall if you refinance with 30 years, then use the difference in cash flow to make extra repayments on your PPOR or other non-deductible debt.

They key to resetting to a longer loan term is to do something useful with the extra cash flow you receive. Otherwise you're just wasting money.

 

Hi Rolf,

The IP loan will be 464k and my PPOR loan is 240k.

thanks,
Cassie

 

If an investment loan you would want to have as long a term as possible as this will minimise repayments to allow you to pay off the home loan sooner.

 

This is the case as only the interest on the loan is deductible and not the principal component

 

Careful to correct minor typo makes a big difference.
To be clear the extra repayments you are considering making would be higher principal amount which reduces your loan balance faster but is not deductible.
Agree with others to focus on PPOR debt/offset first.