Forum Replies Created
If you go 80% LVR on the PPOR, then you can always increase the LVR on the investment loan and pay LMI on that (it doesn't have to be limited to 80%).
You mentioned that you paid LMI initially on your PPOR loan, so if you topped up the loan by $100K, it wouldn't be charged on the full amount, but you would need to pay some more. You would need to clarify how much with your current lender. It might be cheaper to go that way, or it might be cheaper to go with a higher LVR on the IP loan instead.
In terms of the LOC loan itself, you are only charged interest on what is drawn down, not the total credit limit.
Cheers
Tom
You need to be aware that if you are applying for the FHOG, you will need to live in the property for a period of at least 6 months commencing with the first year, so no rental will be coming in during that time, and needs to be budgeted for.
Cheers
Tom
Location does play a part in investing but it is not the be all and end all.
There is no issues with investing in suburbs with a lower than normal economic-social profile if there is potential for nice yields and capital gain.
Cheers
Tom
As per what Terry said above.
You don't need to borrow the full $100K against the PPOR. You can juggle the figures around to come up with a better scenario where LMI (if applicable) is lower.
Cheers
Tom
Hi prospector,
As Richard mentioned, your loans were cross collaterised, hence the huge LMI cost. Just doing some quick figures with ANZ LMI, you would have saved thousands if the loans were separate for each security which is how they should have been structured as a worst case scenario.
Also being cross collaterised, the borrowings are mixed purpose which can be somewhat of a nightmare come tax time.
Odds are the ANZ banker would have done the same thing and the result would have been the same.
You have had a bad experience with a broker, but like any profession there are good and bad. People just need to filter the bad ones out until they come across a good one.
Cheers
Tom
Not a fan of apartments in the Melbourne CBD or nearby Docklands. Seems to be over saturated with supply, and more and more going up all the time. Prefer something further out in suburbia, but that's just me.
Cheers
Tom
Cheers Richard for the clarification.
Will keep an eye out for the pogo stick lender. Think I came across them once before when I convinced them to discharge some magic beans in exchange for a cow.
Cheers
Tom
Theres one thing in the scenario above that has never been totally clarified to me in terms of tax deductibility of LMI.
Taking Cham's situation where he is using equity in his PPOR for a deposit on an IP. Using his figures of:
PPOR loan – $300K
IP loan – $100K
PPOR value – $480K
New LVR – 83.3%
Say for arguments sake assuming no LMI paid before, at the above LVR, LMI is $3000.
Would the full amount of $3000 LMI be deductible as it is the loan for the IP taking it above the 80% threshold, or would the deductible amount be a ratio of IP/PPOR which in the above case would be 25% of $3000? Or something else?
Is someone able to clarify for me?
Cheers
Tom
As Richard pointed out Adam, its the purpose of the loan that is the determining factor.
In you case, the purpose of the funds is to pay out a loan which was used for deposit and costs for the new PPOR (LOAN 2), that is a personal nature and therefore not deductible. All you would be doing is shifting debt around.
Cheers
Tom
I thought it would all depend on the title. You mentioned it is shown as a road, classified PUZ1, which is public land. Though as others have mentioned, best to see a professional to confirm things.
Cheers
Tom
Adam,
When you have non deductible debt such as a PPOR, it is advisable to put any excess money into an offset account linked to it. In your situation above, really no need for the offset in Loan 1.
With your comments under loan 2, it doesn't matter what you use the funds for when withdrawing the 50K in the offset. It's cash and has no effect on the actual loan, whose borrowed funds were originally used for the new PPOR (personal use). Original non deductible rules apply.
However in saying that, if you do change the new PPOR to an IP in the future, then the 50K will be deductible debt, same as what you mentioned in the comments under Loan 3.
In regards to offset, it doesn't matter if money is split over multiple offset accounts or one single one, you still pay the same amount of interest overall. Most people would go with the one offset but multiple accounts do have their place depending on circumstances.
Dependent on lender you can set up multiple loans and offsets.
Cheers
Tom
Hi Kat,
As Terry mentioned, if using for investment purposes, it would be best to create a separate Line of Credit or Interest Only loan and utilise it at the time it is needed. To claim interest on investment borrowings, the ATO likes to preferably see a direct link between the borrowed funds and the item it is being used for.
Your broker should help you structure this correctly.
Cheers
Tom
Cha,
Try to think of it in something else other than buying property.
Example: You borrow funds on either an investment property or PPOR (say $20K) to buy for yourself a stereo, TV, Playstation 3, toys and games, and the rest you gamble away. Now do you think you are able to claim the interest associated with this portion of the loan (the $20K) for tax purposes? Common sense says no.
Now substitute the TV, Playstation, etc with a property that you will live in (i.e personal/private purpose). Same scenario, interest cannot be claimed.
Cheers
Tom
Adam,
You are correct to split IP and PPOR loans to make them separate. Doesn't mix borrowed funds with personal and investment.
However it would more look like the following:
Using Security A (PPOR > IP):
Loan 1: IO, no offset, amount – $218K
Loan 2: (separate split from the above): P&I, optional offset*, amount – $50K
Using Security B (New PPOR):
Loan 3: P&I, optional offset*, amount – $300K
*offset can be linked to either account or both, but should be linked to at least one.
Cheers
Tom
Hi Cha, others above have answered your first question.
In regards to your other questions, lenders generally offer interest only loans either up to 5 or 10 years, but in most cases they can be rolled over into a new term again when the initial period ends.
Also interest only rates are the same as P&I ones.
Cheers
Tom
Terry is correct Adam.
It's about the purpose of the borrowed funds, and from your scenario, the $50K you borrowed on the first PPOR goes to purchase a new PPOR (personal use) via the offset account, which means no deductibility.
Cheers
Tom
Hi Terry,
My sister bought vacant land last year which was onsold to her before settlement. The person who initially purchased it (about a month or so before) wanted to sell at a minor profit (which my sister accepted), but found out that if they did that, they would be liable for stamp duty which would have meant a loss. However they were informed if they onsold at the same price, then they would not be liable for stamp duty, so it was passed on at the same price. At least that's what my sister was told. I find it strange that the original purchaser wouldn't have sold at the minor profit otherwise.
I had a look and there is something in the Victorian Stamp Duties Act under Part 4A, 32C (3) which may support this claim. Obviously I'm not a lawyer and may have misinterpreted this.
Cheers
Tom
