My IP has been fully paid off n my PPR is also not incurring any interest due to offset account.
Would you discharge both properties from the bank or would you leave it as is so that you can withdraw the excess money if required?
Do u believe in having lots of cash in hand or believe ok leaving in bank?
Would appreciate if ozbargainers can share their views n experience.
Thanks in advance!
When to Discharge Your Mortgage?
Tomato on 16/11/2021 - 09:24
Last edited 18/11/2021 - 21:51 by 1 other user
Last edited 18/11/2021 - 21:51 by 1 other user
Poll Options
- 24- will not discharge
- 11- discharge asap
- 39- use the excess to invest elsewhere
- 24- leave in bank as emergency fund
- 1- withdraw cash in hand as emergency fund
Comments
do banks/lenders allow you to refinance if your loan is technically paid off?
your loan is not 'paid off' if it is just completely offset. Your offset account is your money, it does not nullify the loan, just the interest charged.
sweet, as I've been thinking to take advantage of those refinance cashback offers but not sure if they'd allow as I've got more in the offset than the loan itself
@Big Lenny: I've done it a few times. Read the fine print though, as in some cases, (particularly with broker cashbacks) the cashback is based on the net loan amount after a certain period of time (this is the loan - offset).
For the cashbacks that banks offer it usually doesn't matter.
Where else can you borrow a shit tonne of money at 2% to invest elsewhere?
Not a financial advisor but I'm thinking to discharge your PPOR and keep an offset against the IP.
Do this.
You'll be psychologically at ease as your PPOR is officially entirely yours and you'll still have investment/emergency funds in your IP offset for whatever needs/opportunities arise.
We discharged the mortgage, so to not be tempted to invest or spend the money on something we don't need ( High Yield investment car, Movie room, adding a level to our house, spending 2 weeks in a 5* resort, buying fully automated barista coffee machine, having professional pictures taken of our kids …. )
these are very specific things, did you end up doing theM? lol
No new car, no movie room, not even projector, house remained 1 level and not gone on holidays for over 2 years.
But did buy a Breville 870 coffee machineWhoa there big spender….
@TheOtherLeft: I know, but was sick of the nespresso capsules, so $570 seemed a good price to switch.
You could have spent the money to add value to your home or buy ETFs, investment property etc but I understand if you're very conservative
True, must have been the 2001 crash or the 2008 that left a scar ( or 2 )
there are a few things to look at, but if I were you, I'll leave some reserve in the offset account just in case, and put the rest into an index fund. In the last financial year, an AU market tracked index would have had 20%+ growth, and a steady 4% dividend.
And being a mortgage against an IP, interest should be tax deductible as well.
Also bear in mind that only the 1st $250k is guaranteed by the gov in case a lender gone belly up. And not all lenders are guaranteed by the gov. Slim chance, but chance none the less.
And being a mortgage against an IP, interest should be tax deductible as well.
Interest is tax deductable based on the use of the borrowed funds, not the security which is provided against the loan.
agree, and investing into the share market fits that criteria. However, wrt to OP, the loan is already tied to an IP, so the assumption was the loan's original purpose was for purchasing the IP.
I think we're saying the same thing … the point is that a loan doesn't need to be an "investment loan" to be able to gain a tax deduction … nor does the fact that it is an "investment loan" mean that all interest is deductable.
It all comes down to where the money went when it came out of the loan and whether that is a deductable purpose.
Some people get this very wrong and confuse the security (or the "name of the loan") with the purpose when it comes to deductability.
@Seraphin7: a bit of a distraction from OP, but from my understanding, for a loan's interest to be tax deductible, you'll need to be able to substantiate that the loan was set up and subsequently used for the same income producing purpose. Any detraction from the original purpose and the ATO might rule the interest non-deductible.
I.e loan applied for purchasing an IP and used for buying said IP, interest should be tax deductible.
loan applied for purchasing a specific IP, but IP never bought, fund used to to buy shares instead, interest might not tax deductible.
or personal loan applied, and fund used to invest, interest might not be tax deductible.
@tio: The critical point is to segregate loan amounts.
The classic example is an OO home loan.
Let's say you've got a $1m loan, but have $500k equity in the loan due to increase repayments or whatever.
If this is a "single account" loan, don't take your $500k out to buy an investment because that account in then contaminated between borrowing for OO (non-deductable) and investment (deductable). It's not fatal, but then you need to keep a hideous amount of records to demonstrate what's what.
In this scenario, you need to split the loan into two accounts to keep them clean. In effect, you want one loan account with the $500k owing on your original OO investment that you will pay down. The other one should have nothing owing, but with $500k available. You then use the second one to purchase your investment (and keep it quarantined from the first one over time) and the interest on it is deductable. The key here is that there is a clear connection between the debt and the purchase of an investment asset (and there is no contamination over time).
I would leave it in so it becomes much harder for scammers to steal your house. Real estate agents don't do good identity checks and in the past there have been instances of a fraudster pretending to be the owner and selling your house (when the owner went on a long holiday). A mortgage on property makes it much more difficult as the fraudster have to go through the bank as well to discharge it.
https://www.commerce.wa.gov.au/consumer-protection/property-…
unbelievable such things can happen!
Yes it happens
If it were me and I didnt have any long term plans for the money, I'd pay off the loan (but not discharge) . Then redraw and park it in an investment and claim tax deduction from any interest incurred
Not tax advice, yada yada.
Did they force you to buy junk insurance when you got the mortgage?
You mean title insurance? As far as my research goes title insurance isn't junk, people just have a poor understanding of what they think is insured. (E.g. expecting it to pay out when building faults are found, or when they want unapproved structures fixed/demolished but council has not ordered this to happen). It's like $500 so hardly a waste of money.
Ah you are in WA. We bought an investment property in QLD in 1990 financed with NAB. An the very last moment before placing the last signature we were forced to buy 2 useless repayment covers because of self employment. Found out later it was just a plot to extract money and only in the Royal Banking inquiry the term junk insurance came out. We ended up discharging the mortgage and there were 2 fees, on at the bank the other at lands dept and we ended up with a deed document.
hmm never heard of title insurance!
it can be pretty useful if you buy a house (slightly less use cases for apartments, but still alright). it's a pretty low cost to cover you, just google stuff like 'what does title insurance protect against' and there's heaps of articles if you're interested in learning more. can cover things that conveyancing doesn't pick up
Having cheap access to $1m at 3% APR is a good position to be in when one wants to drop a few $10000s in other markets.
Keeping both loans open would be financially justifiable.
Which cryptocurrency today?
LRC
The bank has the title deed until you discharge it.
yes understood.
Which is a very good reason not to discharge it. Much less chance of losing them than having them lying around the house. We have had a zero balance on our mortgage since April 2003 and have not discharged it for this reason.
Never trust banks.
This is true. Losing a title is really expensive and annoying, although I think most states have moved to digital titles now, so it's less of a problem.
Thanks for all the responses thus far. Don't really hv a need for the money atm. But a few friends has suggested to discharge it as we don't know what is gonna happen next year. Interest might go up forcing house price to come down, inflation, cash is worth less, etc…so just would like to see ozbargainers views on this as well.
The share market has been running unbelievably high on unprecedented cheap money from Govt stimulus gone mad. The wheel will turn, and when it does, it could mean a very nasty shock for people on "hopium" buying way overpriced shares, thinking they are going to sell them down the track at even more overpriced levels. Current long term Price To Earnings ratios are unbelievably high and history says that won't continue. Think long and hard before investing in a very risky share market running on "hopium"…..
The feds will keep printing. Mr President just signed a check for $1,000,000,000,000.
Other countries will follow the 👑.
I will not discharge loan, simply:
- when I need money for my another IP or big buys I can just withdraw and go for it, no need to fill up forms and documents;
- Protect your assets from people who want to rip you off. Many time No win no gain lawyers wants to know how much you can pay to settle flimsy claim and they can see what assets are registered in your name and so if your property has mortgage claim they would avoid chasing those clients since they are aware that you have no assets to settle and not worth their time and efforts.
Another consideration - In some juristictions, there is a nasty scam whereby people can get hold of a copy of a properties title deeds, and sell the house to a third party and transfer the title while the genuine owners are away.
The owners, on discovering this, have a perfect legal right and entitlement to pursue the person who sold the property for the full value of what they defrauded.
The new owners have a perfectly valid title and the house and land, knowing nothing in much the same way Manuel didn't.
Not discharging the mortgage leave the lien the bank has in place on the property so such plans are thwarted.
I think all these options depends on individual situations. There is no one size fits all. Different stages of your life will have different decisions. In your 30s, you'll be more aggressive, 50s it starts to changeover, 70s definitely take the more defensive stance. Also in the latter years, itll be harder to refinance.
Keep the loan as an emergency fund, invest the excess. Re-finance every few years to get annual fees waived / cashback offers.