Hi,
My brother and his wife have signed a contract on a new house. They are keeping their current place as a rental. They have approximately 4 weeks until settlement and have had the finance approved on the new place but are just realising that they should have structured the loans better. The currently property has around $200,000 owing with a conservative value of around $400,000. I know what they should be doing – IP should be mortgaged as much as possible with the difference being paid off the PPR, loans should not be cross collateralised etc but given their now tight deadlines, anyone got any ideas to minimise the impact? Would you try to revise the finance now given that the finance clause date on the contract has lapsed? Can they let the settlement happen but then try to do something prior to it actually becoming a rental? Could creating a trust help them at any stage? They have part of the current mortgage fixed until November but I reckon even with the break fees, in the long term they’d be better off – but given the current situation should they wait until then to re-finance? Is that a problem though if it’s already become an IP?
Any pearls of wisdom would be greatly appreciated.Hi bevo
Yes i think they could have done things differently but i fear time is against them.
They are better off to settle first and then rejig things to make it work for them.
Unfortunately they will not be able to change the entity in which they purchase the property in unless they can cop the addition stamp duty and being a PPOR would leave it in their own names anyway.
Tell them to take a variable rate and then once the fixed rate on the IP expires they can look at restructuring the lot and getting it set correctly. Sounds likes a complete cross collateralised mess as it stands.
Richard Taylor | Australia's leading private lender
i am not sure what the problem is from your post. They cannot just increase the loan on the existing property and have all the interest deductible, only the interest on the existing loan would be deductible. Any extra borrowings would only be deductible if the money is used for investment purposes.
I think the best way to structure it would be to make sure the loan for the IP is IO and there is an offset account attached to the new PPOR loan.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
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