QUESTION:
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We are a family of three (myself aged 35, spouse aged 37 and our two-year-old).
We have three properties, the first with a mortgage of $250,000 (principal and interest), the second interest-only with $390,000 (negatively geared) and the third interest-only of $330,000 (negatively geared).
We are renting at the moment - that costs us $1500 a month - and have a personal loan of $10,000.
Should we sell one of our properties and reduce the mortgage on our principal + interest property?
I earn $2000 a month and spouse earns $7000 a month. I think we are heavily in debt with our properties. No other investments. Will it be better to pay off the personal loan (10.5 per cent interest)?
ANSWER:
If you are renting at the moment, the properties are all investment properties which means they should all be on an interest-only basis, not a principal and interest basis.
Your income is not high in relation to your debts, which means you are vulnerable to interest rate rises and are not receiving a huge tax refund due to negative gearing.
The problem with selling properties is that you lose a big chunk of the sales price in costs. It’s really for you to decide whether the potential capital gain would be more than what you would lose by continuing to prop up the cashflow of the properties.
If you transfer the principal and interest loan to interest only, you could use the money freed up to attack the personal loan.