We have been told that you cannot refinance for an increased mortgage once the value of Property A goes up and use it to pay for Property B if property A is an investment and Property B is your own home; but you can refinance an investment and use the money to purchase another investment property, ie, all investment funds/mortgages must be used for investment purchases.
However, what if you purchase property A as an investment – refinance property A a couple of years later once the value had risen, and used that money, plus some of your own cash, to purchase property B which you rent out for a year or so, then move into? At the time of purchase, it was an investment, but fairly soon after using the investment funds to top up the mortgage, it becomes your principal place of residence.
And does it get more complicated if you refinance property A twice and use that cash to pay off the mortgage at property B while you still have renters, and still move in a year or two later?
Hi Sarah,
When they say you "can't refinance for an increased mortgage" to pay for an investment property, they are most likely referring to tax deductibility.
As the veterans on this forum are often quoting, tax deductibility depends upon the "use of the funds"
eg:
If you borrow $300k to purchase an IP, the full amount is deductible.
If you then pay off $50k and re-draw it again to buy shares (an investment), the full amount is again deductions.
If you then pay off $50k and re-draw it again to buy a motorbike (for personal use), only the $250k is deductible.With regards to your second scenario, I believe the re-drawn funds would only be deductible whilst the property was an investment, once you move into it, it is no longer deductible.
Sarah Finn wrote:We have been told that you cannot refinance for an increased mortgage once the value of Property A goes up and use it to pay for Property B if property A is an investment and Property B is your own home; but you can refinance an investment and use the money to purchase another investment property, ie, all investment funds/mortgages must be used for investment purchases. However, what if you purchase property A as an investment – refinance property A a couple of years later once the value had risen, and used that money, plus some of your own cash, to purchase property B which you rent out for a year or so, then move into? At the time of purchase, it was an investment, but fairly soon after using the investment funds to top up the mortgage, it becomes your principal place of residence. And does it get more complicated if you refinance property A twice and use that cash to pay off the mortgage at property B while you still have renters, and still move in a year or two later?Hi Sarah
I think you have confused yourself.
You can refinance any loan as long as you have the income and equity. You can also increase any loan – but whether the interest on the increase is deductible will depend on what you use the funds for.
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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