Benny wrote:

Hi Pollardis,

The only way that is possible if you have another property you can borrow equity against

I agree with you – the wording probably should have looked more like this :-The only way that is possible if you have another property with equity you can borrow against
But then, I don’t believe that is the ONLY way – with the smallish amounts needed, a Personal Loan, or even a Credit Card could do the job.
Benny

That is true, but those debts would need to be disclosed which reduces your borrowing capacity by a greater amount than borrowing it against another property. And the interest charged on those borrowings might actually mean that LMI could come out cheaper in the long run.

Cheers

Tom

Terryw wrote:

inusure wrote:

( the one that is building/soon to be finished), and they told me that i can only get positive cash flow by purchasing this type of property.

Which they coincidentally happen to be selling.

Beware.

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Correct, when they’re suggesting property for you, you can be assured they will be receiving a commission for it that is added in the price. The effect that will most likely have is your valuation may tank.

Cheers

Tom

Borna Boltužić wrote:

Thank you!

Just to clarify, you both mentioned increased interest deductions, are you simply referring to the fact that the negative gearing amount will be higher and therefore can claim a higher amount on my income?

Yes, the higher the interest, the higher the deductions against the income of the owners on title.

Borna Boltužić wrote:

Another question, how would you structure the loan?
We are leaning towards interest only, but would you split some i/o and some p&i?
We have been quoted 3.99% 3 yr fixed by ME bank, what do people think about potential further drops in the cash rate and how they will affect i/r?

IP should definitely be all I/O, especially as you’re thinking of a PPOR down the track.

Fixed can be good if you’re looking at a set and forget type loan, or for when cashflow might be a bit tight and you would like to know your repayments for budgetary purposes. If it’s to “beat the bank”, then in the majority of cases you would lose out.

Fixed rates are also independent to the cash rate, and will rise or fall outside normal RBA cycles.

You should really see a decent broker who can go through your whole scenario and come up with a structure to suit you.

Cheers

Tom

Noobugawa wrote:

Hum. I think banks tend to offer better variable rates for a single loan of a larger amount, say $1m loan can get var rates of 4.3% for example.

Not really the case. Total aggregated lending will likewise get you better rates, even if it’s multiple splits.

As for the OP, take heed of Terry’s advice. It’s spot on.

Cheers

Tom

It sounds like you are trying to salary sacrifice the car. This has its own advantages and pitfalls, and you should really see an accountant to make sure it is suitable for you.

As for the borrowing capacity, this all depends on how much your repayments are for the lease? That is dependent on the lease term, interest rate, etc. What that does is reduces your pre and post tax salary, and as a result reduces your borrowing capacity. It isn’t out of the realms of possibility that it may reduce your borrowing capacity by $220K, but it may be more, and it may be less. You really won’t know until you had all the numbers.

Cheers

Tom

adam.p wrote:

Continuing with my new situation….

In summary from old post, I was refinancing to convert PPOR to IP. I ended up with:

1 x IP with:

LOAN 1 – Tax Deductible
LOAN 2 – Non-Tax Deductible because I used it to buy my PPOR

1 x PPOR with:

LOAN 3 – Non-Tax Deductible because it is used to buy my PPOR

Now, I’m looking to buy another IP. So the questions:

Can I now claim LOAN 2 as tax deductible? How do I link this LOAN 2 to say its purpose now is to buy another IP?

If the above is not possible, how do I convert LOAN 2 so it can be tax deductible?

Adam,

If you are still going to live in your PPOR then that LOAN 2 is not going to be deductible. If you made it into an IP then it will.

If you’re looking to buy another IP, what you can try dependent on equity position is take out a loan against either property to fund deposit + costs for new IP. That would be deductible.

If you don’t have equity but instead have cash funds you want to use, then you can pay down some of the non-deductible loans, and then take out a separate loan as above for deposit + costs for new IP for same deductible result.

Just needs to be structured correctly. As your situation isn’t totally clear in your post best to see a decent broker who can go through it all with you and get it done right.

Cheers

Tom

• This reply was modified 10 years, 3 months ago by  PLC.

Richard is right on this. The maximum you can claim on the interest is $185K. The $50K won’t be deductible.

If you really want the $50K in funds, then it would need to be done as a separate split to make things clean.

Cheers

Tom

Hi bns, like Jamie I’m not quite understanding the question you have posed, however he is correct in saying that if you are looking to pull equity out of the existing property for the new PPOR purchase then it wont be deductible as the purpose of the loan will determine deductibility, not the security it is based against.

The loan structure from the very start will be the most important factor here for you. A decent broker will be able to help you out and get you on your way.

Cheers

Tom

Agree with the others.

With the figures you have given, you have about $130K to play with in equity with your current property (before incurring LMI). However structuring this equity release is critical to give yourself the maximum deduction possible come tax time.

This is where a decent broker can be a enormous benefit.

Cheers

Tom

Hi magic,

Unfortunately it doesn’t work that way. Lenders still add a standard buffer to fixed rates for serviceability purposes (as these products revert back to a variable rate at the end of the fixed rate term).

Westpac and St George used to allow a buffer of only 0.5% on fixed rate products of 3 years or more, however they have stopped that practice now from what I recall.

Cheers

Tom