Pay off Primary Place of Residence Loan or Invest?

TheOtherLeft on 28/08/2018 - 08:04
Last edited 28/08/2018 - 09:17 by 1 other user

Hi all,

I'm in the position that due to an inheritance, I can either completely pay off my PPOR or invest the money. With paying off my PPOR I still have a healthy rainy day fund so won't fall short if I have any unexpected large payments. I have shares (not part of my rainy day fund) which I don't want to sell but don't have any investment properties. My wife is quite risk adverse so is not keen to get into IPs.

From a psychological point of view, paying off my PPOR would be great but not the best financially. What do you think?

Thanks all.

Financial

Comments

  • Trying2SaveABuck on 28/08/2018 - 08:18
    +12

    Dont understand why people ask these kind of questions on a bargain forum NO one can answer this question without more information on your situation ie taxable income, intention on investing in the future etc.

    As a general rule paying off your owner occupied property is the wises due to there being no tax benefits on paying interest on a owner occupied property

    However it really depends on your situation go talk to an accountant

    • onevstheworld on 28/08/2018 - 10:26
      +1

      Good point here ^

      A financial planner is another person you should speak to. Just make sure they are a fixed fee for service, and not % fees or commission based model… hopefully the royal commission has sent those guys running into the hills.

      No one will be able to say what's "best financially" because we don't know your:
      Goals
      Risk profile
      Savings
      Earnings
      Debt levels
      Future career/family plans

  • mbck on 28/08/2018 - 08:26
    +4

    invest in bikies, then advertise your services here. Lots of requests and literally no service.

  • EightImmortals on 28/08/2018 - 08:38

    For those (like me) who had to google https://smartmoneyguide.blogspot.com/2013/04/moving-from-one…

    'PPOR' principle place of residence.

    Yes pay it off. Being debt free will give you an appreciation of freedom that you might not have had before. Plus you are no longer beholden to the banks and you will own your own home.

    How can paying off your home not be good financially?

    You stated "With paying off my PPOR I still have a healthy rainy day fund so won't fall short if I have any unexpected large payments." So now you will still have your rainy day fund, you will own your own home and you wont be making monthly interest payments (wasted money) to the banksters?

    What is not 'good' about that?

    • dcep on 28/08/2018 - 10:39

      but those that leveraged, bought & sold in Sydney for the last decades , have increased their wealth by multiple folds.

      of course, you'd have to cash out by now to reap the profits, turning the equity into hard cold cash paid by suckers who get into the market now.

      if they keep paying off their mortgage for 10-20 years without ever investing… well, i bet you can see the difference just like the Super comparison ads shown on TV.

      • EightImmortals on 28/08/2018 - 11:23

        Yep, great timing for those who got in but anyone who denies that we have a housing bubble that's currently sitting on a knife's edge isn't paying attention. We cashed out of property a couple of years back for a decent profit, probably too early but hindsight is a wonderful thing. I'd be really wary of leveraging into this market but each to their own. When the bubble pops, those holding debt are going to be in some trouble.

  • renster72 on 28/08/2018 - 08:52

    Goal is to own your own home, that should always be no 1 priority, if you pay a bit in tax then get in before Neg Gearing laws change..

  • braskic on 28/08/2018 - 08:58

    Your PPOR mortgage is just that, a mortgage for your principle place of residence. That means any interest on that loan is not tax deductible.

    Investing is good, ideally by the time you reach retirement age you want your assets making as much as you do, but if you do want to invest you should borrow money to do so. Should you use your inheritance you are still paying non deductible interest to the bank for your mortgage.

  • AlloAllo on 28/08/2018 - 09:00
    +1

    By not paying off your PPOR you will continue to pay non-deductible interest.

    If, however, you paid off your PPOR and then redrew that amount or borrowed again to invest, the interest that you would now be paying would be deductible.

  • 87percent on 28/08/2018 - 09:09
    +1

    Offset..

  • Kenb0 on 28/08/2018 - 09:23
    +4

    Pay off your PPOR(as its not tax-deductible) then debt recycle the equity you have in your PPOR to either invest in an investment property or shares, whatever you feel comfortable with. The interest on the loan used to invest will be tax-deductible. This will work out much more tax-effective than just using the money to invest directly. You want to minimise non tax-deductible debt first

    • dcep on 29/08/2018 - 12:26

      you mean, after recycle debt, both interest from ppor mortgage (taken for ip deposit) & ip loan , are tax deductible ?

      • Kenb0 on 29/08/2018 - 12:45

        It doesn't matter what asset is securing the loan, what matter is the usage of the funds borrowed. So yes, if you withdraw money from a PPOR mortgage to use as an IP deposit(or to buy shares), the interest on that loan is tax deductible, you'll want to make sure it's in its own split account so as to not get contamination issues with the main PPOR loan.

        • dcep on 29/08/2018 - 13:07

          does redraw counts as recycle debt ? or need to pay off in full and discharged then take out a new mortgage, in order for the interest to be deductible ?

        • Kenb0 on 29/08/2018 - 14:52

          @phunkydude: no, no need to pay off in full and take out new mortgage, etc, you can redraw and still have the interest be deductible. But to do it as cleanly as possible, setup a separate loan split account so you can easily separate determine what purpose those funds were used for, the interest charged on that split, etc. have a chat with your accountant to make sure it's all above board.

  • CheapskateQueen on 28/08/2018 - 17:22

    give yourselves peace of mind and have the best of both.

    pay off your home. and if you really want to invest in something, just start using your new savings to build your deposit.

    sure you won't be in the exact same position as if you invested straight away but then you'd also still have your home mortgage to pay off and all the added risk and stress of 2 loans.

    once your home is paid off, life is easier, saving for the future is easier. and as someone else said, you can use the new equity in your home to secure your investment loan if you really want.

  • TheOtherLeft on 29/08/2018 - 07:53

    Thanks all for your suggestions and you've reinforced my decision. I'm in the process of discharging my loan.

    • Lunarboogie on 29/08/2018 - 10:34

      That was easy.

      • woody007 on 30/12/2018 - 13:49

        Exciting times!

  • BobCobb on 04/01/2019 - 14:01

    Nothing wrong with doing both - especially if you need to feel like you’re in the investing game.

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