Should I borrow or use my own funds?

Hi All,

I have been approved $422k for investment property purchase covering purhase costs stamp duty and all expenses.

I found a property that is a good buy at $450k.Factoring in stamp duty and expense property cost will be 480k.

I require extra funds of 58k(480 - 422) to go ahead with the purchase.

I approached lender for borrowing this extra amount.As i don't have anymore equity on my PPOR, he suggested to pay down my PPOR loan for 58k using funds from PPOR offset account.By doing so equity is available on PPOR and they will lend me this extra money for Investment purchase.

Question is - Is it good idea to go with what the lender suggesting or should I just use my own funds to pay directly for the Investment purchase.

What are the pros and cons of the idea lender suggesting and pros and cons of me directly paying for Investment purchase.Interest rate of PPOR loan is 3.99% and Investment loan is 4.44%.

thanks in advance

 

It's not a bad idea. It's a form of debt recycling. You're reducing non deductible debt and increasing investment debt.

Just a couple of things to note.

1. Avoid cross collaterising your home with your investment.

2. Get advice from your accountant

Cheers

Jamie

 

Thanks Jamie.

 

Work out the potential tax savings.
Amount of cash used x interest rate = annual deductions lost
Times this by you marginal tax rate.

 

Thanks Rolf.Good idea.
I haven't thought of this scenario

 

Thanks Terry.Below are the calcs

Potential tax saving $1149.
$58000 * 4.44 = $3108.
$3108 * 37% marginal tax rate = $1149

Based on the above savings which option do you suggest.

thanks

 

Which would option would you suggest?

 

I mean using my own funds or paying to PPOR loan and using equity.I decided not to go with the 450k property and instead stick with purchasing 422k property.

Thanks to all who replied to my post.I learnt about debt recycling.Once I purchase my first IP and things settle down, I will look into debt recycling to buy managed funds or shares.