Guys & Gals
Looking for a little advice on a couple of questions if possible
My partner and I bought our unit 3 years ago now and ever since then we have had aspirations of getting going with at least another place or two. The unit we bought is Inner West of Sydney and purchased for 330k and a few weeks ago an identical sized unit in the building sold for 410k
The loan balance is 250k with 45k odd in the redraw. I have just last week switched the loan with Rams to IO to preserve the deductability after reading on this site that this would be the best way to go if we ever wanted to rent out the unit. Now for the questions
1) I know that crossing loans is bad but if I took an IP loan with Rams and they crossed with the current PPOR am I correct in assuming that I would avoid LMI? or would it be better to go with a LOC against the PPOR for 20% of the purchase price of the new IP and keep them seperate? I assume that the interest rate on the LOC will be much higher than the base home loan itself?
2) Am I correct in assuming that 20% of purchase price would be needed? I obviously would want to put the least amount into the IP purchase so as to be able to claim the maximum tax benefits from the property
I apologise if these questions sound stupid but I am trying to get my head around a few things before diving in
One last questions would be more of a 'crystal ball question'. Given that the whole world is talking about GFC2, would you say that the Australian government would likely release new stimulus when it actually hits to keep the economy going. The reason I ask is that we bought our place during the last one when FHOG was trippled and stamp duty was nil
Would hate to purchase something in the next few months and then a couple of months later, awesome stimulus is released
Many thanks in advance for your assistance
Kevin
Hi Kevin
Firstly well done in switching the loan to IO to preseve the deductibility of the interest that is certainly a move in the right direction.
Now going forward.
1) Crossing the loans together will not get you out of paying LMI if the numbers are not right and to be honest often it can be cheaper on the LMI front to have split loan. Structuring the loans saves you down the track in so many ways.
Had another forum client say to me yesterday Rams wanted to charge her a higher rate of interest for a LOC so i suggested a simple equity loan. Drawn down the funds on settlement, pay them back into the equity loan itself and then redraw them as the deposit on the new property it required.
2) No you dont need to come up with 20% and in fact i think i would be looking to put in 10% plus acqusition costs and reduce the exposure on your PPOR.
Take the new IP loan out with a separate lender and then once the IP has increased in value redraw upto the original loan amount (i.e 90% of the increased valuation) and use thes funds to pay down the loan secured on your PPOR. You can the repeat for the next IP.
Also in regards to claiming the interest you can still claim 100% + of the purchase price as the security for the loan is not important. What is the defining factor is what the funds are to be used for.
Go and secure them against a pedal bike and if the purpose is for investment the interest will be deductible.
You just want to try and reduce the debt exposure to your PPOR as much as possible
Your mortgage broker should be able to assist you with the structure.
Cheers
Yours in Finance
Your mortgage broker
Richard Taylor | Australia's leading private lender
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