Hi,
Whats the deal with re-draw from an investment property loan. Some people have told me you cant. My broker said I can? I'm confused
The property is currently my PPoR, and I've paid off about $35k but I'm wanting to go back to university this year to study which means re-locating interstate and therefore my current property will become an investment property and I'll rent it out, and i'll rent for the next 3-4 years whilst studying.
I have had a free re-draw facility on this loan and was relying on having access to this $35k whilst i'm a student for expenses austudy wont cover, until someone told me that you cant re-draw from an investment property.
Does anyone know if u can re-draw from an investment property like this, or what the implications are?
Maybe someone can clarify things, or suggest a way to have access to the money I've paid off the loan and still have it reducing my interest on the loan. I'm looking at offset accounts etc, but don't want to pay break costs and stuff if its actually not neccessary
Hope someone can help
thanks in advance
You can redraw but that portion of the loan is only deductable if redraw is for business or investment use.
E.g. If you pay extra and then redraw 20k for a holiday. That 20k is not deductable. Offset is better.
So its not actually illegal from a tax point of view to re-draw, but just that the amount you redraw is not tax deductible? So why is offset better? If in your example you use 20k for a holiday from an offset account, how does that differ?
Because if the funds are in a seperate offset account; interest is charged as if it was in the loan; therefore the same effect as the first example from an interest saving point of view.
If you spend the funds; the loan has not been touched; the loan was still 100% used for the investment therefore the full amount still deductable… Protects your tax benefits.
This article explains it
http://www.smh.com.au/articles/2004/08/13/1092340458713.html
Yes correct info above.
When you redraw you are taking money from the loan. When you put money in an offset it's your money that you are lending to the loan. Therefore you can take it out whenever you like for whatever you like.
Too late now. You would be better now pulling out a lump sum and then not touching it. If you pull out bits and pieces after you make it an investment property t will be a tax nightmare.
Redrawing is treated as new borrowings. If you borrow to fund living expenses the interest will not be deductible and you will end up with a mixed loan. Interest must then be apportioned and it will be impossible to later pay off the non deductible portion first.
Split the loan first.
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
As Terry mentioned split the loan first.
Just get your broker to do this for you as it is something we do for our clients on a regular basis.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
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