Hi All,
Big Hello to everyone on this forum! It looks like there are a lot of knowledgable user here so I'm looking forward for your advice.
I have a few questions and concerns which Im facing regarding my current investment property and living situation. I recently got married and thinking about the various options with my wife
I initially borrowed $320K and currently owe $300K. My current loan is split at $160K each. It is being rented out, and currently valued at $375K. We are currently renting at a seperate address.
Some options have popped into my mind, and wanted to know if someone could give some sound advise
1) What are the pros and cons of putting an extra $1500 into IP/month? Is it better to pay off as much as we can..?
What are the effects on Tax return, interest etc. Or… Shall we save the extra $1500/month instead?
2) My wife works at a bank and we can get a discounted rate which we calculate at saving around 180 dollars a month. However to qualify, she needs to have her name in the mortage. If we refinance, what do we need to keep an eye out for? What are implications to our tax benefits since the IP loan will be in two names? How does it work?
3) What are the costs, if any, with moving into my current IP, pay off as much as we can, then rent it out again and make it an investment property after 5 years or so?Finally, 4) Are there any other suggestions and options to consider?
Thank you,
Justin
Justin
1) Consider asking your bank to add an offset account, and place extra funds in there. Why – a) You save the same amount of interest you would save by paying down the loan. b) You maintain the deductibility of the underlying debt, so if ever you use the cash in the offset for a non-income producing purpose, all of the interest on the loan is still deductible. Talk to your accountant about this.
2) Name on mortgage is different from how much of the property she may own. If having the property in your name is more beneficial for tax purposes, then she could have a 1% (or other) interest in the property, and you own the balance. The bank now has her name on the mortgage and everyone is happy. Again talk to your accountant about this – take with you the values, your wages etc so you can calculate the real benefit.
3) Apart from the obvious costs of moving – tax deductibility would be the major one. Another one to pass through your accountant, taking into account the rent you pay. Even if you do decide to move in, (1) above is still relevant, becuase you may decide to turn it into an IP at another date.
You may also need to reconsider NOT refinancing – especially if the bank values your property at less than $375K, anything less than this and I calculate that you may be liable for Lender's Mortgage Insurance, again…..
cheers
mikeHi,
If we refinance and have my wife on the mortgage with the bank together, we are saving approximately $200 dollars a month. The property itself will still be in my name.
So does that mean that when I submit the tax return , her income gets added as well which results in a higher taxable income and hence less tax returns?
Sorry for the newbie questions
Justin
A non-bank lender normally will only allow the wife to go guarantor, as she is not on title. In fact some will not allow her to be on the loan documents at all or allow her income to be used, as she has no beneficial interest.
The larger banks, who have much open clauses in their loan documents ensuring they catch you many ways, alwasy try to get the partner on as borrower, to reduce their risk, but will allow guaranteing as well. – See if the bank will alow her to be guarantor, not borrower and still give you the discount rate.
Why – If only as Guarantor then the tax department could never say that half the interest is hers. If borrower, can the tax department claim that – This is really a question for your accountant.
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