Advice needed around options to fund first IP

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epsom
Member
@epsom
Join Date: 2011
Post Count: 5
February 4, 2012 - 9:47 pm
Hi,
I have $180k offset against a remaining $219k loan for my PPOR valued at an estimate of $490k. I am in the midst of evaluating what I can afford for my first IP.
With plans to keep my IP separate from my existing home loan, I initial wanted to use the $180k in my offset to fund the deposit (min of 20% + all related fees), and taking a IP interest only loan for the remaining 80%.
My mortgage broker however is suggesting I take on two loans; the first against my PPOR to fund the 20% deposit + fees, and the second for the remaining 80%.
Are there any risks/benefits of what she is suggesting, vs, funding the deposit entirely out of my existing offset?
Can anyone comment or share their experience/expertise?
E.
Terryw
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@terryw
Join Date: 2001
Post Count: 16,213
February 4, 2012 - 11:03 pm
Don't use the offset straight off for the deposit as the interest on your PPOR will increase and this won't be claimable.
Setting it up like your broker suggests will save you tax and keep the properties from being cross collateralised.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
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Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Jamie Moore
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@jamie-m
Join Date: 2010
Post Count: 5,069
February 5, 2012 - 1:20 am
I agree with Terry and your broker. This will ensure the total borrowings against the IP is deductible and you get to hold on to your cash savings.
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
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Mortgage Broker assisting clients Australia wide Email: [email protected]
epsom
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@epsom
Join Date: 2011
Post Count: 5
February 5, 2012 - 3:35 am
Thanks for the reply.
Why would the bank lend me the deposit (I never thought they did)? And wouldn't this mean the equity in my PPOR will be used as collateral to secure this 'deposit' loan?
Terryw
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@terryw
Join Date: 2001
Post Count: 16,213
February 5, 2012 - 3:45 am
Banks are in the business of lending. As long as you qualify why wouldn't they lend?
You will be using equity, but it won't be used as security for the new property. The PPOR will be used as security.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
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Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Richard Taylor
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@qlds007
Join Date: 2003
Post Count: 12,024
February 5, 2012 - 6:52 am
Epsom
No i agree with the boys your Broker is doing the right thing by you and not the Bank.
Bit more paperwork but shows you he / she is acting in your interest and not the lenders.
100% deductible and you still retain the use of the offset funds.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
epsom
Member
@epsom
Join Date: 2011
Post Count: 5
February 5, 2012 - 10:39 am
Thanks for all the advice Terryw, Jamie, and Richard.