LOC (line of credit) acts just like any other loan in regards to how much you can get, although most will only allow 90%
so on your 200K equity it would be 180K LOC.
OF course that depends on serviceability.
EdenSee if this helps
a LOC (Line of credit) is like an overdraft but secured against your property, and is normally a transactional account. You can delve in and take out further cash or make payments in like salary. Can be dangerous, as it is like a huge credit card.
Capitalising interest, just means to let it be added back on to your loan, and not pay it.
In regards to what Terry is talking about –
The LOC has to be associated with an IP where there is unused credit left. Some banks will allow you to not put in any cash to the LOC, and each month when interest is debited, the loan amount will increase. You can also fool the bank by putting money in and then taking it out, if they do no0t allow it. The point is you can take the debt up to your limit.What Terry is suggesting is all cash money is put into an offset for your PPOR and you allow your investment loan (with the LOC) to increase, allowing further deductions.
Word of caution – the ATO clamped down on an investor that used rent to pay off his PPOR and let his IP loan amount increase, so more deductions could be claimed. All rent should be paid towards your IP’s first.
Therefore we are only talking about other available cash.
Dom (Salacious) – I doubt very much you have reached your borrowing limit.I have Pm’d you.
Regards
JohnInspired Finance
(02) 9944 7776Hmm, So if you have a property worth say 200K and you have a loan of 150k, then you LVR will be 75. But they will allow up to 90, so they will allow me to have a 30K LOC.
Which will be all that I’ll allow for renovating. In the end my loan will be 180K and my property will be 200K + the renovations.Is this right?? Have i missed something?
Christopher.
Correct
Of course, you will have to be able to service that extra amount to get it, and also apply for it. If the loan/limit amount is currently 150K then you can’t go past that till you apply.
In the end my loan will be 180K and my property will be 200K + the renovations.Well hopefully – and if you have done a better job it may be worth more. Of course if you want to then access that extra cash you would have to apply for an increased loan again, estimating the new value. If you do that to soon, quite often the valuer will ask how much you spent on renovations and just add that amount to the valuation….no offence to valuers, but many are currently getting sued, so they tend to be conservative, but still within market values. I always tell my clients that they should look at the real cost, and that can sometimes be double the cash they paid out
Regards
JohnInspired Finance
(02) 9944 7776Hi
Sorry for the late reply, I am in Thailand atm.
I had a plan which I ran by an account who was high up in the ATO for many years. He said it should be ok. It went something like this:
You have two loans, one on your house and one on your investment. You have some equity in one or both, so you set up a LOC on either. Everymonth you borrow to pay the expenses on the property. this money comes from the LOC and the money that you would have used goes into the 100% offset account attached to your home loan.
Then, you can borrow from the LOC to pay for the shortfall as the rent may not cover the interest.
I asked about borrowing the whole amount to pay the interest on the investment. He seemed to think it would be ok. Businesses borrow to pay interest all the time.
He said to strenghten your position, it would be better to have the IP loan and home loan with different banks. Set up a 100% offset account on the home loan so you are not actually paying down this loan. And pay the interest on the LOC each month.
The end effect is that you are paying the same interest overall, but you are slowly increasing your tax deductions.
Terryw
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So its like refinancing your IP which would make the extra refinanced value of cash non-deductable now be deductable. This seems to be a good idea.
Hmm, how would all the tax be handled does it get tricky or something?
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