My wife and I have a loan of approx $110K on our home which is worth roughly $300K-$310K. (we also have 2 small kids btw).
My wife has just gone back to work and we now have some extra money (approx $300-$400) coming in each week. Our goals are 2.
1. We’d like to increase our capital over the next 5 years
2. We need to find a house/block slightly bigger for us to live in. (our current house is in a very good position, but it is small with no built-ins / storage / garage etc).We’ve been thinking that we’d like to purchase another house in our area (satisfying goal 2)worth $300-$350K for us to live in and use our current house as an investment property.
There are two obvious problems with this.
1. We only owe $110K on our current house and it would be a positively geared IP. It would mean we’d have a loan on our new house of approx $300K which would be very difficult for us to pay off without the assistance of negative gearing. Can anyone think of a workaround for this one ? Is it possible to move our equity to the new house and pump up our current house loan to the max ($250-$300K)
2. Our current house is in both our names. Everything I’ve read says that IPs should be in the name of the highest income earner, which is me.Does anyone have any advise ? Tell me if this doesn’t make sense.
Joe
Hi I will have a stab at this, but you would need to talk to an accountant etc about taxation effects etc.
Starting on no 2 first. I believe that the articles that you read that suggest to put all IPs in the highest income earners name assume that the IPs are negatively geared. Important distinction if you are considering positively geared properties at any time.
Now number 1. Yes you can ‘move equity’ from one property to another by (most commonly):
1) Refinancing your current loan to a higher amount.
2) Getting a top up on your existing loan.Both of these methods give you access to money for deposit + costs on the new purchase.
The taxation effect of this (deductablility of loan interest)is where you will need to seek advice from someone more wise in these areas.
I believe that you can obtain a tax deduction of up to the origional size of the loan. EG if your current 110K loan was origionally 150K, then if you decided to increase your mortgage to 250K for example you would only get tax benefits on 150K.
Also watch out for mortgage insurance if you are considering increasing your mortgage above 80% of the property’s value.
If someone is better versed on tax deductability of loans in this circumstance please correct me if needed.
Hope this helps in some way.
Happy investing[
]Nathan.
so if we went ahead with it and only had a loan of $110K on our investment property, it would probably be positively geared, in which case it would be better if it was in my wife’s name.
anyone have any other ideas on the moving equity and tax issues ??
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