Residual funds post settlement

Funds sent to my solicitor's trust account came from my LOC.
Post settlement, after all necessary fees were disbursed, I have $10k in residual funds.
Usually I send this back to my LOC but since my account is maxed out, it's not going to be useful for another deposit for the next few years. My goal (in 3 years) is to wait on the growth of my existing IP and then try to consolidate most of my IP LOC debt in to their main loan, freeing up the LOC account so I can go for another deposit.
My LOC is at 3.78% and my recent IP loan is 3.99%.
Do most people just return the residual funds back in to the originating account or put it back in to the main loan? I presume both options don't affect 'mixing' as it is not going near my personal/offset account.

 

Think it through

Borrowing to pay another loan down is refinancing...

 

As it's residual funds (not borrowing) coming from someone else, the "other loan" is for the same investment property. So when I consolidate my loans in to the main loan in the future, it's essentially the same thing?

I guess I'm not on the same train of thought as you at the moment. I paid in to a trust and the residual funds would normally come back but if it went to the main loan instead (of the same IP), I'm only paying down the same IP debt?

 

If it is cash if you pay it into the loan you will be permanently reducing the debt that the loan relates to..

 

That's what I'm considering. If it goes back in my LOC it won't be doing much as it won't be enough for another deposit. So the next 3 years is to pay down as much principal on all my IP (whilst reducing interest charged). Once that's done I wanted to action your Tax Tip 36 by consolidating my loans. Since the main loan has a higher interest rate over the LOC, I was thinking to put the residual funds in to the main loan. If won't make a dent to the interest but if it messes things up I'll simply move it back in to the LOC.

 

You mentioned a trust. Are you mingling your money with the trusts money?

 

Sorry when I mean my solicitors trust, I mean their holding account for disbursements for settlement.

 

Could you please elaborate?

 

Sure

For example
If you have a $100,000 loan with westpac which you used to buy a property, and a $100,000 unused LOC with CBA, what you could do is to borrow from the LOC with CBA and pay down the westpac loan. This is an informal refinance as the banks are not really party to it. Deductibility of interest doesn't change either because the loan is still associated with the property purchase.

Why do this?
Well, lets say westpac's rate is 5% and CBA's rate is 4%, you would be saving 1% in interest by doing this. that would be $1,000 per year in this example.

But the good thing is where the Westpac loan has redraw you could still redraw on that loan for something else (as long as it hasn't been close).