What is the better option further?

Hello,

We bought a property (PPOR) in 2017 for 570K and took a loan of around 500K.
This is a split loan where variable loan was fully offset (125K).
Recently we had a re-valuation done and property came back at 650K.

We are looking at what is the better option here?

• Take out the equity and use some of the offset money to buy an IP
• Pay off PPOR

If the best option is to go with buying IP, our goal would be buy and hold.

Thanks!

 

No problem to buy an IP and pay off your PPOR at the same time. You probably won't want to use the money in offset to fund the IP though, because it's unlikely that the loan being offset is tax deductible.

Far better to get a separate investment loan from your available equity to help fund the IP.

 

Thanks @Jane Ridder

Pay off by PPOR means, just pay into that loan account right.
Does putting all the money in offset and making more than minimum re-payment amount is better or pay off loan in small amounts like 10K'ish better?
If I'm buying an IP, I would redraw from the extra's I've paid along the equity available as I can only access 65K of quity as per Broker.

Thanks!

 

@northy163 if your current bank valuation is $650K and total loans outstanding are $500K, then your actual equity available at 80% LVR is $20K.

To increase this amount for a reasonable IP deposit, you will need to access the funds in your offset account. However the tax effective way to do this is to transfer the required funds from your offset account into your loan, then have a separate loan set up ready for your IP deposit (and costs).

Your broker should be able to guide you on this. There is also some very good information provided by @Terry_w and others on here: Tax Tip 9: Don’t use Cash in Offset account to Invest

 

I will get in touch with my broker and get more info on numbers and loan structuring.

 

@Jane Ridder : I thought I will have an equity of 70K. Can you please explain how it's only 20K?

 

$650,000 x 80% LVR = $520,000

$500,000 in liabilities = $20,000 left over in accessible equity.

 

Thanks @croseks
Will the equity be 50K, as if I have made extra payments and I owe 470K to the bank?

 

If your outstanding debt on that property is now $470K, then yes, that's correct.

 

Thanks @Jane Ridder

 

I have read somewhere about this. Is this how it works?

• Let's say I have paid 75K to my variable loan, making outstanding loan balance around 50K
• Arrange for a valuation on my PPOR and valuation comes back as above.
  • Assume equity arounf 60K
• Does bank's lend you the above equity amount and the amount available in redraw?