Converting PPOR into first IP

Viewing 7 posts - 1 through 7 (of 7 total)

matt7428
Participant
@matt7428
Join Date: 2009
Post Count: 2
August 10, 2012 - 12:44 am
Hi Everyone,
I am currently own place in Geelong and have a P&I loan on that property.
Current PPOR Loan: $300k
Appox PPOR value: $430K
If possible I'm thinking of refinancing the original loan to release funds for a deposit to purchase my next PPOR, and then convert the existing PPOR into an IP with an IO loan. I am not sure if this is the best way to access funds. Any advice would be greatly valued
Thanks
Jamie Moore
Participant
@jamie-m
Join Date: 2010
Post Count: 5,069
August 10, 2012 - 2:58 am
Hi Matt
Welcome aboard.
What you're aiming to do is possible – it's something we do daily for our clients.
However, it's important that it's done correctly so you avoid cross collaterisation of your PPOR and IP and so you can maximise tax benefits.
A decent broker will be able to assist.
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
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Mortgage Broker assisting clients Australia wide Email: [email protected]
PLC
Participant
@plc
Join Date: 2012
Post Count: 400
August 10, 2012 - 4:12 am
As per what Jamie said.
Make sure that both loans are separate.
Current loan to be split into 2, one split for current loan, other for the deposit of the new property, and second loan on the new property itself.
PLC | Phoenix Loan Consulting
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Melbourne based Mortgage Broker | Making Finance Simple
matt7428
Participant
@matt7428
Join Date: 2009
Post Count: 2
August 17, 2012 - 1:20 am
Hey guys,
thanks for the advice
I got in touch with my bank and they suggested i set it up the following way:
Extent original loan to the maximum amount (not exceeding 80% LVR ratio), convert to I/O loan, and then using released funds for a deposit for the next PPOR. I had i thought for the next PPOR of setting it up with an I/O loan with an offset account, then maybe converting this also to an IP in about a years time after a renovation. Would there be any problems with setting it up like that?
Cheers Matt
Jamie Moore
Participant
@jamie-m
Join Date: 2010
Post Count: 5,069
August 17, 2012 - 2:18 am
Sounds about right with a couple of caveats.
1. make sure the increase to 80% involves a separate loan split (ie. they're not just lumping the entire loan together)
2. they keep both properties uncrossed
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
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Mortgage Broker assisting clients Australia wide Email: [email protected]
fireblaze211
Member
@fireblaze211
Join Date: 2012
Post Count: 1
August 17, 2012 - 5:42 am
Hi Jamie,
Why would it be tax beneficial to avoid cross collateralisation?
I'm also new in the Investement Property area, I currently have Primary resi which I have almost paid off (approx $400K), I'm thinking of buying an IP (approx $500K) and have it fully funded by debt (100% LVR) so that the interest payment on it is interest deductible.
The only way bank will allow me to do this is if I cross collateralised the two properties.
Thanks.
Matt
Terryw
Participant
@terryw
Join Date: 2001
Post Count: 16,213
August 17, 2012 - 6:03 am
Keep in mind any extra funds won't be deductible and you should set up a seaparate split loan rather than end up with a mixed loan and the associated tax issues.
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