Shall I Make Extra Repayment to Owner Occupied or Negative Geared Investment Property

tooblue on 27/03/2022 - 15:47

I've been reading and doing the calculations. And I got more confused. My mortgage rate for investment property is higher than the OO property.

We should always pay off higher rate loan first. What do I do when higher rate loan has tax deduction? Shall I discount the higher rate by MTR (e.g. 30%) before comparing?

Another confusion is interest only option for negative geared investment property. We pay more interest over the term of the loan when doing interest only. But some articles says it does not matter as it has tax deduction.

Basically how does the tax deduction affect the repayment?

Financial

Comments

  • SF3 on 27/03/2022 - 15:58

    Basically how does the tax deduction affect the repayment?

    It doesn't, you may get a tax deduction when you submit your tax return.

  • bemybubble on 27/03/2022 - 16:12
    +2

    What do I do when higher rate loan has tax deduction? Shall I discount the higher rate by MTR (e.g. 30%) before comparing?

    If you’re for example sitting at the 34.5c bracket. Then discount the interest by that much. That then becomes the effective interest rate. Obviously if that’s still higher than your OO then pay off your investment debt. If that rate falls below your OO then pay off your OO.

    Another confusion is interest only option for negative geared investment property. We pay more interest over the term of the loan when doing interest only. But some articles says it does not matter as it has tax deduction.

    Apply the same logic to the before point.

  • Seraphin7 on 27/03/2022 - 17:38
    +4

    We should always pay off higher rate loan first.

    Pay off non-deductable debt first.

  • Bob Svargis on 27/03/2022 - 19:54

    You should get some independent financial advice or see an accountant really. If you’re not sure, then you probably didn’t get good advice at the start. Your accountant is the best person to understand your income and to advise how the investment loan provides certain tax benefits but it needs to be calculated in the context of your income.

    I don’t know what you earn. But it’s usually best to pay down the non tax deductible (non-investment) loan first, even if the interest rate on the tax-deductible (investment) loan is higher.

  • Rako on 27/03/2022 - 20:33
    +1

    Please pay the non-deductable debt first

  • miwahni on 28/03/2022 - 00:11

    Always pay off OO debt first. You've got someone (tenant/ ATO) helping you pay off the investment debt.

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