We have a $350k mortgage on a fully renovated ppor now worth $750-$800k. We would like to keep this property (5km from sydney CBD, 3 bedrooms) and refinance, (we can almost 0.8% better interest with different lender same broker) to 20% LVR with the additional funds in an offset to be available to purchase another PPOR, a bigger more family freindly house that we can renovate and add value to. my husband is a builder so we can do this over time at a reasonable cost.
we would like the first PPOR to become a rental property as the rent would be quite high. We would also like to benefit further from future capital growth as its so close to the CBD.
How will the initial loan which is not for investment be affected if we decide to rent current house out and buy a new one. We would have around $250k available as a deposit on a house that we hopefully purchase for $750-$800k.
What are the tax deductibility issues with thisHi Jo
By all means you can refinance however the maximum you can claim as an interest deduction is the current $350K.
Deductibility relates solely to the purpose so refinancing or redrawing is considered a new loan and therefor if the purpose is to purchase a new PPOR the "purpose test" has failed and the interest is non deductibile.
Depending on how the property is held (i.e Joint Tenants, Tenants in Common) and your individual Marginal Tax Rates you maybe able to look for one of you to buy the other's interest out in the property and structured correctly the interest on the entire new loan would be decuctible.
Often clients chase an interest rate yet with more indepth understanding they find that rate is relatively immaterial in the long run especially if structured correctly the savings can be considerably higher than a small rate reduction.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Thanks Richard,
Do you have any suggestions as to what would be the best way to hold on to this property and buy a new one. Would we be best to pay out the old loan and get 2 completely new loans twhen we find another house that reflect the desired outcome of a new PPOR and the old house becoming an IP.
Thanks
Jo Woodcroft
Hi Jo
No certainly your suggestion isnt going to help you overcome the issues.
Difficult as i say with the numbers but have a read of my 3rd paragraph and that should be something worth considering.
Your Broker should be able to give you the varying options but certainly having say a loan with $575K of deductible interest should aid you going forward.Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Hi Richard,
We are not high earners and we have our own business so not sure if 1 of us in our own right could do this. We have a combined income of $130k, would this hinder us?
I will be seeing my accountant soon but I'm just formulating ideas and considering options at this stage. It apperas that brokers dont always give accurate advice regarding tax issues and accountants dont always have broad enough ideas to consider different loan structuring scenarios.Thanks for the continuing advice
jo
Hi Jo
Nothing to stop you having the Title in 1 name and the loan in 2 names.
I am assuming that you are both partners / directors / trustees of the business so you income can vary.
Even if you keep the Title in Joint names there is nothing to stop you structuring the loan correctly.
Totally agree with you about some Brokers / FInancial Planners not providing accurate advice.
Some havent even paid of their own PPOR let alone purchased an IP and they are out there giving you advice on wealth creation through property.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Thanks again Richard, i will take these suggestions to my accountant
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