OK guys, I have been digging around, searching, and asking for advise on my current plans for refinancing my PPOR. Here is what I have come up with. Please give me any comments as to whether it all will work and make sense – I guess mostly if there is something flawed in my thinking.
I am refinancing my PPOR. The new loan amount will be for 264K. My idea is to have 20K as a LOC, and the remaining 244K as an IO loan with an offset account. (Q1: i assume this is possible?)
My plan: All income (wages, business, rent etc) will go into the offset account. Only private expenses will ever be drawn from the offset account. The LOC will be used purely for business expenses and investments. To pay business expenses or to invest, I will transfer the money from the Offset account to the LOC. This transaction is ensure the money stays within the loan for as long as possible, and as I said, to have all business expenses/investments come out of the LOC. This keeps business and private expsenses separate.
A really cool side effect of this is that every time I draw on the LOC, that once non deductible loan is slowly but surely turning into a fully deductible loan.
Having the offset also allows me to take my cash when I make my current PPOR an IP and put it onto the new PPOR. So far so good I hope. Having the LOC allows quick ready access for business expenses and investments.
I THINK the only thing left to work out is this:
If say I transfer 10K from the offset onto the LOC (to keep business and private expenses separated)and then used to invest, 10 out of the 20K is deductible. If I do it again soon after, what component of the LOC would be deductible? is it now the entire 20K? How is that calculated?Finally, and I guess depending on the answer of my previous qestion, assuming the 20K total LOC is now deductible, how would I go about increasing the LOC from the “standard” part of the loan – is this easy to do? What would be the best way to achieve this with my main goal to make the entire loan eventually tax deductible?
I look forward to hearing comments on the above and would appreciate any futher advise. I am only new to this, so please be gentle…
Cheers[biggrin]
HHH
Hi HHH,
got a little lost in your post, but if you only want a LOC of $20k, maybe you might be just better off getting a credit card with a $20k limit…
but also not all debt is deductible on a LOC, check with your accountant first, which ones are… and in what you invest and purchase for your business.
Cheers,
sisHi Sis, yeah maybe you didn’t follow. Sorry if I have confused.
Credit Card would be no good as I want to use the LOC for investment deposits/costs etc, and so I don’t expect to be able to pay them off in any short time period.
I only want to start with a small LOC as it is non deductible and has a little higher interest rate – plus it always works against you from a servicability side even if you have not drawn on it.
Have I lost anyone else? I am happy to clarify any specific points as I would really appreciate some advise.
thanks again
HHH
Hi HHH,
below are some answers, I hope this helps.Originally posted by HHH:OK guys, I have been digging around, searching, and asking for advise on my current plans for refinancing my PPOR. Here is what I have come up with. Please give me any comments as to whether it all will work and make sense – I guess mostly if there is something flawed in my thinking.
I am refinancing my PPOR. The new loan amount will be for 264K. My idea is to have 20K as a LOC, and the remaining 244K as an IO loan with an offset account. (Q1: i assume this is possible?)
My plan: All income (wages, business, rent etc) will go into the offset account. Only private expenses will ever be drawn from the offset account. The LOC will be used purely for business expenses and investments. To pay business expenses or to invest, I will transfer the money from the Offset account to the LOC. This transaction is ensure the money stays within the loan for as long as possible, and as I said, to have all business expenses/investments come out of the LOC. This keeps business and private expsenses separate.
Correct
A really cool side effect of this is that every time I draw on the LOC, that once non deductible loan is slowly but surely turning into a fully deductible loan.
If The LOC was set up for investment, then this is deductable debt, providing funds drawn out of the LOC are investment related,[/b]
Having the offset also allows me to take my cash when I make my current PPOR an IP and put it onto the new PPOR. So far so good I hope. Having the LOC allows quick ready access for business expenses and investments.
Correct
I THINK the only thing left to work out is this:
If say I transfer 10K from the offset onto the LOC (to keep business and private expenses separated)and then used to invest, 10 out of the 20K is deductible. If I do it again soon after, what component of the LOC would be deductible? is it now the entire 20K? How is that calculated?It does not matter where the funds to pay the LOC debt comes from, eg: offset acc, rental income, savings account, The important thing to remember here is that the interest on the LOC is deductable.
Finally, and I guess depending on the answer of my previous qestion, assuming the 20K total LOC is now deductible, how would I go about increasing the LOC from the “standard” part of the loan – is this easy to do? What would be the best way to achieve this with my main goal to make the entire loan eventually tax deductible?
I look forward to hearing comments on the above and would appreciate any futher advise. I am only new to this, so please be gentle…
Cheers[biggrin]
HHH
Hope this helps, good luck.
Kind Regards
Steven
Mortgage Broker[email protected]
http://www.mobilemortgagemarket.com.au
Ph:1800 820 500
VictoriaPLEASE note comments made should NOT be taken as specific taxation, financial, legal or investment advice. Please seek professional, specific advice.
Hi Steven
Thanks heaps for your reply. I actually read another answer you just gave on another thread, along similar lines.
You have confirmed my thinking.
Very much appreciated.
[rolleyesanim]
HHH
I’m sorry I didn’t follow all of your question.
If you have a Home Loan and IP Loan, then the scenario below could be profitable.
It sounds like your going to rent out your current home and buy a new home, is that right? If so, you may want to check with your accountant about the deductibility of your interest. I have heard that deductions may not apply unless your previous home (now rented) is in a positive cashflow position.It is possible to “convert” your Non-Deductible debt (Home Loan) to Deductible over a short period of time.
Open a new LOC facility secured preferrably over your Owner Occupied property (is this what PPOR stand for?) This is strictly for investment use. Use this to pay your repayments on your IP.Take your rent from your IP and add it to your mortgage payments on your Home Loan.
Net effect: You will pay off your Home Loan much more quickly, saving tens of thousands in non-deductible interest, while accruing deductible interest in your LOC.
Crucial Factors:
Make sure you pay the Interest Only repayments on your LOC. The ATO does not like us capitalising interest with these split loan facilities. (Harts case up before the High Court)The Prime reason for seting up this facility would need to be debt reduction on your Home Loan rather than tax deductions. To achieve this, you will need to calculate that your interest savings on your home loan will be greater than the tax-deductions achieved with your LOC. This should happen as a matter of course, but is necessary to to substantiate to argue your case. A good mortgage broker can help you here.
It would be preferrable to have a P&I loan on your PI property. I know MortgageHunter has suggested an I/O loan, but that was not with this facility. Some accountants may let you have an I/O loan and run this facility, but most would prefer a P&I because of the ATO’s arguements and intentions re the afore mentioned Harts case yet to be decided.
Commonly known as a Split-Loan, you need to be aware of the Critical Factors.
I am not a tax advisor. Please seek independent tax advice.
All the best,
Michael O”Brien (MOB)
Adelaide Mortgage ProfessionalsYep, this confirms what you said previously.
Thanks heaps again, you have made me a very happy camper![biggrin]HHH
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