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PPOR large mortgage versus IP outright

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Sam | 07 Nov 2013, 11:34 PM Agree 0
I have a PPOR mortgage of 790k. Investment property worth 430k with only 50k on the mortgage rented at 420per week.
Accountant advises to sell IP and reduce PPOR mortgage and re-invest in something newer!
Please advise if this is sound advice, others say ask my bank to transfer $$ to increase IP loan but I don't think banks will do this
  • Barry Ison | 08 Nov 2013, 12:24 PM Agree 0
    This could be good advice as your mortgage has no tax advantages and you just need to see what tax is payable on IP, also you need to look at what you are looking to achieve with your investment in property. Always look at what your plan is and see if it fits, I always discuss this with my clients, what is their requirements before advising them on any direction in property. Property Pack Barry Ison
  • Tom | 15 Jun 2014, 03:24 PM Agree 0
    If you redraw on your IP and use the funds to reduce the debt on your PPOR, this will not be tax deductible. Depending on your circumstances, it may be advisable to sell your IP to reduce the debt on your PPOR, which is not tax deductible.

    If you decide to sell your IP and reduce the debt on your PPOR, I would advise that you set up an offset account. Then place the sale proceeds into the offset account to reduce your interest payable. It may also be beneficial to have the loan on the PPOR interest only. Rather than paying off the principal you can put extra cash into the offset account. This will provide more flexibility in the future. If you decide to upgrade and make your current residence an IP, then you will be able to draw on the cash in the offset account to pay for the new PPOR. This would result in the new IP loan tax deductible. If you use a redraw facility any redraw from the IP loan will be deemed as a new loan to fund your new PPOR, and as such will not be tax deductible.

    How you structure your loans today may result in big savings (via tax deductions) in the future.

    I would advise you seek advice from a good tax accountant or mortgage broker to determine what structure would be best for you.

    Regards,
    Tom
  • Kathlene | 24 Jun 2014, 11:47 AM Agree 0
    Hi Sam,

    I think Tom is onto something there for you. great idea to buy your next PPOR with the proceeds from offset. that is if you want to move. You might like the new better and bigger property and decide to move in yourself. good structure on the loan and maximising your tax savings. Its something I would suggest to my clients too in terms of structure.
  • Fay McLean: Property Investing Support | 24 Jun 2014, 10:40 PM Agree 0
    You really need to look at what your original plans and reasons for investing in the first place was. By selling our IP and reducing debt on your PPR will feel good, it will not be working for you as hard as it could be. I would recommend getting some help to set out your objectives and goals that you want to achieve long term and then you will have good guidance as to what steps will get you there quickest.
  • Mark Coburn | 28 Oct 2014, 05:34 PM Agree 0
    Sam,
    What was the goal that you set out to achieve when you bought your investment property?

    If wish to create wealth I would suggest that you continue to pay your PPoR mortgage as you are and use your investment property equity to purchase more investment properties. At today interest rates anything you buy should be positively geared after tax, so now is the time to get that equity out there working for you.

    Sure selling the investment property and paying capital gains tax will save you a few dollars every week, but it won't create you any real wealth moving forward.

    - Start with your goal i.e. Retire fully funded.
    - Next look at how much time your have to reach your goal. 10, 20 0r 30 years?
    - Finally look at the strategy that will get you to you goal. i.e. Investing in cashflow positive properties that have good tax credits to reduce your taxable income, in high growth areas.

    A growing property portfolio with strong capital growth properties is what will make your wealthy, saving $200 per week on your home mortgage won't.
  • Dan Draitser | 08 Dec 2014, 04:27 PM Agree 0
    Mr. Sam. I understand your question. In my opinion as your mortgage has no tax advantages and you just need to see what tax is payable on IP. You should consult a good mortgage adviser and discuss with them, they can give you the best possible answer for your question.
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