HI
What about using the funds from the redraw on the IP to invest in something that gives you a return greater that the interest rate on the borrowed funds.
There are investments out there that are pretty secure and return 12-15% p.a.
Then use the surplus cashflow to pay down your PPOR quicker.
Just a thought!
Brendon
Acute Mortgage Reductions
‘Better Finance for More Homes Sooner’It is possible to “convert” your Non-Deductible debt (Home Loan) to Deductible over a short period of time.
Open a new LOC facility secured preferrably over your Owner Occupied property (is this what PPOR stand for?) This is strictly for investment use. Use this to pay your repayments on your IP.Take your rent from your IP and add it to your mortgage payments on your Home Loan.
Net effect: You will pay off your Home Loan much more quickly, saving tens of thousands in non-deductible interest, while accruing deductible interest in your LOC.
Crucial Factors:
Make sure you pay the Interest Only repayments on your LOC. The ATO does not like us capitalising interest with these split loan facilities. (Harts case up before the High Court)The Prime reason for seting up this facility would need to be debt reduction on your Home Loan rather than tax deductions. To achieve this, you will need to calculate that your interest savings on your home loan will be greater than the tax-deductions achieved with your LOC. This should happen as a matter of course, but is necessary to to substantiate to argue your case. A good mortgage broker can help you here.
It would be preferrable to have a P&I loan on your PI property. I know MortgageHunter has suggested an I/O loan, but that was not with this facility. Some accountants may let you have an I/O loan and run this facility, but most would prefer a P&I because of the ATO’s arguements and intentions re the afore mentioned Harts case yet to be decided.
Commonly known as a Split-Loan, you need to be aware of the Critical Factors.
I am not a tax advisor. Please seek independent tax advice.
All the best,
Michael O”Brien (MOB)
Adelaide Mortgage ProfessionalsHHH,
If you are planning on ever making your current PPOR into an IP, then you (in my opinion!) are much better off having an offset account. this way, if you move out (to a new PPOR), you can take all the money in the offset account and use it to purchase the new PPOR. The entire loan taken out for previous house then becomes deductible because it is an IP.
If you had a LOC, and paid in, and spent, and paid in, and spent, and then redrew to buy your new PPOR, it would not all be deductible. What you redraw for investment is, but you would need to separate the loans to make it clear at that point.
If you don’t plan on making your home an IP ever, then use a LOC.
Cheers
Mel
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