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By loans you mean the mortgage too? Pay that off first? In Australia you could pay off your mortgage then refinance in a brand new loan to buy investments. The
by bbcbasic 10y ago
By loans you mean the mortgage too? Pay that off first?
In Australia you could pay off your mortgage then refinance in a brand new loan to buy investments. The interest you pay on THAT loan is income tax deductible.
- h4nkoslo 10y agoMortgages are a special case because the debt is usually tax-subsidized, and depending on the state, one effectively has the option of giving the house to the bank in lieu of paying the remaining balance.
- bbcbasic 10y agoThat is a difference in the US. In UK/Australia you pay the mortgage from your post-tax salary. Encouraging some people in Australia to perversely rent their house out and go and rent a similar house (sometimes identical apartment in same block!) from someone else, in order to get the interest offset against tax. In the UK it is even worse, as you can only claim 20% of the interest cost on an investment property even if you are paying 40% tax on the rental income (!!)
- charlesdm 10y agoA tax deductible loan, in essence, reduces the actual interest rate you pay. If you only pay 1-2% on a loan, that's fine. Better to make 6-8-10% on your money, than using it as a downpayment for a mortgage which you could finance at 1-2%. If cost of debt < return on investments -> then invest it, don't use it for your downpayment. Obviously, this does not apply to credit card debt, on which you pay 10-15% interest per annum.
- pbreit 10y agoSorry, should have been clearer. Basically credit cards, but any loan that's more than around 10% finance charge.