G'day all. Firstly, thank you to everyone who has posted on this forum. This place is a gold mine for newbies like I. I found this forum a few days ago and have been reading a fair few threads and absorbing the information. My situation is this, my wife and I haven't been financially responsible over the last 8 years or so, purchasing on interest free cards, cars, not saving much money. We have woken up in the last couple of years and we have been aggressively paying down debt. Next week the only debt we will have left is the mortgage due to us refinancing the car loan into the mortgage. We bought 8 years ago at $295k and the value of the property went up to $330k (valued by ANZ in 2015). It got valued again last week at $310k. So at this point there is no equity in the property, but we have freed up the car repayments, which will now go onto the mortgage. We plan to make double the minimum repayment and everything we have spare will be put into the mortgage. I have read about debt recycling and thought that would be a good way to proceed since we will be paying extra on the mortgage. But with 2 children, we will outgrow the place in another 5 years or so. Is debt recycling the best way to proceed if we will need to upgrade the PPOR in the not so distant future? I am 31 now, and I would like to have our first IP by the time I am 35. Am I doing the right thing by putting everything into the mortgage to free up equity for an IP? Or should I pay the minimum and out the cash in a savings account instead? No offset is attached to the mortgage. Any general advice would be much appreciated.
If you don't intend on staying into the property for long, it would be best to park additional savings in the offset account. Also ensure your car loan is split from your home loan, so if you do choose to make the current property an IP you keep the non ded debt separate. Best get advice specific to your circumstances.
Hope you split the car loan you added in as a separate loan. If not you should restructure your loans asap to segregate that out. Then pay that split off asap and pay minimum on the house. You can then recycle that split. Then as the Property Twins have mentioned think carefully about whether to debt recycling the house loan or just use offset cash to invest. There should be an advantage to either depending on your circumstances.
Thanks that was fast! The refinance is still in progress and should be finalised this coming week, so it shouldn't be too late to have them split the loan. If I refinance the car into the mortgage without splitting it, does that mean none of the loan would be tax deductible if I later turned it into an IP?
No. It would be a mixed use loan and you would need to apportion the interest and could not pay down the car portion independently. Split now!
Thanks Terry, I have already sent off an email to get the loan split. I feel like I have a bit of direction now, much appreciated.
Hey Rick - if you're paying LMI to get the car loan consolidated, I'd hold off on any loan signing and get proper advice based on your goals and plans. You might find without it, you'll just be digging yourself a bigger hole that will be expensive to fix down the track. The brokers here have already pointed out multiple potential issues with your loan structure, so it'd pay to hit up someone and get some specific advice so you can get it right from the start.
The offset will cost $395 per year and I'll be pumping everything into the split to pay it down so won't be putting much in there.
Not sure yet. I am going to seek some specific advice before I sign anything with ANZ to make sure it is set up properly for the future.
What does "outgrowing" your place mean? Just stay in it. You'll save way more money. You know in HK people have families of 5 living in 40sqm, and it's supposed to be a top 3 financial centre in the world.
If your current property is not your forever home and you may turn it into an IP later down the track, I would spend the $395 and have an offset attached. Pay minimum repayments, and deposit all extra funds into the offset.
