A or B

hi, im looking at selling an investment house i have, and buying my ppor in a new area, but i also have two commerical loans (personal loans) @ $12,000 and $11,000 im paying about 13.5% interest. they make $100pw each and the loans are deductible. would A, i be better of paying out these two loans and then dumping the rest into the new ppor with of course in not dedutible or b, leave the two shop loans and dump the whole lot into the ppor loan which is not deductible and pay the high interest rate on the shop loans. im thinking of paying out the two shop loans as this would give me $10,400 of assesible income i can use to fund a better property as a ppor, and maybe another investment house latter on.

 

Best of both worlds

If you structure your new loan correctly it should be possible to pay out your old loans and retain their deductible characteristic with borrowed funds against your new PPR. This will depend on the equity you have available. You will need to consider costs of a separate line of credit facility, break costs on your existing loans, stamp duty etc. You definitely do not want to mix up the deductible and non-deductible debt in one facility as that will create an expensive accounting exercise. Based on thie information you have provided you're likely to save about 5-7%p.a (less your tax deduction and costs) on the balance of your deductible loans. As a result I'd say spending an hour with a good accountant or financial planner may well worth your while to explore the issues. Going Interest only ont he deductible portion may also be a good strategy for you.

This is not a recommendation and is only based on the limited information about your personal circumstances provided. Please seek comprehensive advice before acting on the above suggestion.

Regards

Jason