were should spare money go?

I am about to start a mortgage. If I have spare money, over and above the minimum mortgage repayments, which out of the following should I pay the extra money to?

(a) mortgage
(b) super
(c) HECS debt

 

What are you trying to achieve?

mortgage pays it down, which is a problem if you want to use the money later to buy a ppor. So offset might be better.

super you cant touch until retirement age. Is that what you want?

hecs has a certain interest rate. Can you do better than that by investing the money?

other options might be shares or other investments.

 

d) beer
e) travel
f) hobbies

...... non deductible debt with highest interest

 

In your case op the best option might be to read about investments a LOT more before making any decisions.

 

I will have have redraw facility (but not offset), so maybe this is the best place to put the money, because I will be able to redraw that money if I need it.

I'm aiming to have $100K in cash as an emergency fund. I currently have $50K.

Until I have $100K cash, I don't want to put any extra into super. My job pays 17% super so that is a fair whack anyway.

 

This will depend on a lot of things such as
a) age
b) amount of deductible debt
c) income
etc

 

This will cause problems if you were to ever rent that property out as there could be a large loan but none of the interest deductible.

 

If I make extra repayments to the loan, won't the loan decrease in size?

What do you mean by the interest being deductible?

 

yes

If you rent out a property the loan used to buy that property could be deductible - the interest on it.

 

Can you add an offset account to your loan? If you ever decide to rent the property out in the future, the interest is tax deductible ie. you don’t pay tax on this money. But redraw is not good, you can’t just pull out your extra repayments for any old purpose down the track and still have all the interest tax deductible. You are best off not paying the loan down, and having your money in an offset account instead, you have much more flexibility. It does the same thing, but it’s much better if you decide to rent it out later as you can maximise your deductibles. And there is most certainly a chance you’ll rent it out, even if you don’t think so right now.

 

I am not able to have an offset account - it is not offered by the lender. What sort of money is at stake? The loan is between $300K-350K. I may rent the property out in the future. Does the issue only arise if I actually redraw money?

 

If you redraw for investment purposes then it’s fine, but if you redraw for other purposes, you will have accounting issues. Consider changing the loan, and I am serious on this. I know it’s a pain in the butt, but it’s better to do it now rather than have pain later.

 

Op you need to know enough to ask the right questions. That means doing a lot of general reading first.

People are providing great answers but you are not understanding them.

 

Jar on top of the fridge. My 2c.

 

at 3% interest you could be paying $9k pa in interest. If this was fully contaminated and rented that is $9,000 per year in less deductions - for many many years.

But if it is never income producing it won't matter

 

Would it be possible for me to change to a different lender that does allow an offset when the time comes that I want to rent the property out ?

 

Sure you can change to a different lender when you rent the property out.

if you dont want to preserve deductibility of whatever amount you repay between now and then.

 

Yes to avoid any tax issues you would need to avoid paying anything extra into the loan. Hence, the sooner you have an offset account the better.

 

This would roughly be my situation, with very similar figures to what will happen to me:

https://www.dpm.com.au/wp-content/uploads/2019/09/pic.png

Doesn't seem like a lot in it in one year - $1000 compared to $933. Or have I got it wrong?



Source: Redraw vs Offset - Understand your home loan | DPM Financial Services

 

It will be a small amount compounding over time.