Hi all
What type of strategy would one use for a LOC. My understanding is too pay the loan down quicker if whats going in is greater than whats going out.
If one is considering and yet undecided whether to use the PPOR in the future as an IP and has a PPOR loan which strategy is best to adopt in terms of loan structure.
I have heard that if one uses the PPOR and becomes an IP one should not claim any depreciation i read it somewhere it was an article my an accountant.
Any one heard of this and the reasons?
regards
AlfRegarding the LOC, it is automatic that the loan would be paid down quicker if income is greater than outgoing.
Regarding loan structure if you change your PPOR to an IP, there is no need to change the loan. It is secured against the property, not the use. You will still own the propery and the lender will not say a word if you keep making your payments.
I think the not claiming depreciation applies when you lived in the PPOR for 6 months or more and you get the 6 year capital gains tax exemption. Claiming depreciation may cause issues with this.
All the above being said, you should regularly have your loan structure looked at and pricing compared to new products.
I hope you make the right decision regarding your property.
Robert Bou-Hamdan
Mortgage AdviserM: 0414 347 771
E: [email protected]
W: http://www.mortgagepackaging.com.auFREE Finance-Related Newsletter: See – http://www.mortgagepackaging.com.au/index_files/newsletter.htm
Comments made are of a general nature and should not be construed as individual advice.
© 2004 Mortgage Packaging Pty Ltd
Hi Rob
Thanks for that what i was getting to was that with a LOC you pay your loan down or pay interest only however if you kept the ppor as an ip you would have to draw the loan back up and the purpose would be for your new PPOR for eg.
With offset you would have the cash as a sizeabel deposit but the loan would remain the ame and be tax deductable.
This is the way i understand it as otherwise you would have a small loan on a IP and a large loan on a PPOR.
I hope i express it correctly of what i am trying to highlight so you understand as to the better structure.
Can one get OFFSET I/O loans.
regards
AlfYes you can get interest only loans with an offset account. I usually recommend these loan types before a Line Of Credit as the LOC is usually more expensive.
Regarding your comments about drawing the loan back up, I think I understand what you mean. If you mean the loan amount will increase back to the limit if you use it all, that is correct. It is the same thing that happens with the LOC.
The ONLY differences between a Line Of Credit and an Interest Only loan with 100% Offset is that the LOC is evergreen (lasts forever) and you get a cheque book. These differences have never been a problem for my clients.
To the question of tax deductibility, it does not matter which loan you use… if the funds are not for investment purposes, they are not deductible. A LOC does not mean all the funds used are deductible. You can organise split loans or utilise other structuring techniques to track what portion is deductible and what is not. A split (new loan portion) is the easiest.
I hope this addresses your concerns.
Robert Bou-Hamdan
Mortgage AdviserM: 0414 347 771
E: [email protected]
W: http://www.mortgagepackaging.com.auFREE Finance-Related Newsletter: See – http://www.mortgagepackaging.com.au/index_files/newsletter.htm
Comments made are of a general nature and should not be construed as individual advice.
© 2004 Mortgage Packaging Pty Ltd
Hi Rob
Thanks for that reply just so the information is correct from how i see it i’ll use an example:
LOC
Limit 200000split ppor 100000 Inv100000
balance 60000
available 40000using the 40000 for
deposit on new ppor
the 40000 interest is not
tax deductaible because the purpose
is not for income producing purposes.Offset
Loan 100000
40000 in account I/OLoan still 100000
take the 40000 and use as
deposit for new ppornow rent the IP the loan is 100000 interst tax deductible
Thats how i understand it to be.
Regards
AlfYou have managed to find a loophole that many people try and use but it is a very fine line. I would discuss this with your accountant extensively but – YES – you have the jist of it.
The interest on the money used for the PPOR is NOT legally deductible in my opinion.
Robert Bou-Hamdan
Mortgage AdviserM: 0414 347 771
E: [email protected]
W: http://www.mortgagepackaging.com.auFREE Finance-Related Newsletter: See – http://www.mortgagepackaging.com.au/index_files/newsletter.htm
Comments made are of a general nature and should not be construed as individual advice.
© 2004 Mortgage Packaging Pty Ltd
Hi again
My understanding is that this is quite legitimate.
The only proviso would be that the original loan on the PPOR is tax deductible if made to an IP.
If you had a loan for 70000 then spent 30000 on doo dads the original 70000 interest is tax deductible.
The only thing i am trying to establish is the question of CHOICE.
So if at the end of the day one decided to pay down the loan on the ppor then one can just refinance and put in the 40000 as used before and loan at 60000.
Otherwise one could go down the PPOR to IP path etc.
It appears the LOC does not give the same choice.
regards
alfLoan types have nothing to do with what is deductible. It all comes down to the purpose of the funds. If the money is not used for investment, it is not deductible.
Robert Bou-Hamdan
Mortgage AdviserM: 0414 347 771
E: [email protected]
W: http://www.mortgagepackaging.com.auFREE Finance-Related Newsletter: See – http://www.mortgagepackaging.com.au/index_files/newsletter.htm
Comments made are of a general nature and should not be construed as individual advice.
© 2004 Mortgage Packaging Pty Ltd
Hi
I can’t concentrate hard enough through your examples!!
But my understanding is this:
If you move out of your PPOR and rent it out the interest on the loan balance as is, would be claimable. If you increase the loan to use as deposit for a new PPOR then this portion wouldn’t be.
If you intially started with a IO loan and a 100% offset account, you could pay any extra into the offset, so when you move out the deposit for your new PPOR could come from your offset. This in effect will make your interest payments on your new IP (former PPOR) all claimable. It is like increasing your loan and having the whole thing claimable. But actually you are not increasing your loan as the money is coming form a separate savings account, ie your offset. Therefore the ATO can not argue you are increasing a loan for non investment purposes.
And I beleive you could claim depreciation on a rental property that was formerly your PPOR.
Terryw
Discover Home Loans
Mortgage Broker
Click below to email meTerryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Hi Rob/Terry
Thanks again for your response. Yes Terry this is what i wanted to establish. You have explained it well.
I will of course get verification from an accountant.
A Merry Xmas to you and yours
Kind regards
AlfAlf, this is still a fine line. I was under the impression that you were about to make this change. Have you been using an offset account on your PPOR?
Robert Bou-Hamdan
Mortgage AdviserM: 0414 347 771
E: [email protected]
W: http://www.mortgagepackaging.com.auFREE Finance-Related Newsletter: See – http://www.mortgagepackaging.com.au/index_files/newsletter.htm
Comments made are of a general nature and should not be construed as individual advice.
© 2004 Mortgage Packaging Pty Ltd
Hi Rob
I am currently going to refinance my IP.
I am considering also refinancing my PPOR.
I currently have a LOC with my PPOR split
so part is for personal
and part for InvestmentI am just looking at the options at this point of what is the best move. At this stage i am not sure if i will sell the PPOR to buy another one.
Retain the current PPOR and make it into an IP.
So it appears that the offset offers the greatest choice at a time in the future.
I have been one in the LOC camp and liked them my last PPOR i had a LOC paid down to 20000 owing however i had to sell to buy this current one. Otherwise i would’ve had a large PPOR debt and a small IP debt if i had kept it as an IP.
So it seems that if i had an offset at that stage and had that 80000 in it which i had paid off the LOC i could’ve used it as a deposit on the current PPOR and the loan would have remained at 100000 and become (tax deductible) and my loan on the new PPOR wouldv’e been halved.
So this got me thinking if there is a better way of doing it legally ala
LOC or OFFSET
kind regards
AlfIf you are going to refinance, why don’t you use one of the brokers on here. Terry seems to understand your needs very well and he knows his stuff.
Robert Bou-Hamdan
Mortgage Adviser0414 347 771
[email protected]
http://www.mortgagepackaging.com.auFREE Finance-Related Newsletter – Click Here
Comments made are of a general nature and should not be construed as individual advice.
© 2004 Mortgage Packaging Pty LtdHi Rob
Yes i may use a broker from the forum for the PPOR.
At this stage i will see how the IP refinance goes.
cheers
alf
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