Hi guys,
I currently own an unencumbered property with my fiance. Property is worth 400K but my fiance would like to move in a bigger house and keep current property for investment purposes.
We are looking at buying in the brunswick/preston area of Melbourne and our budget is approx $500K. We would need to borrow the full 100% by using the equity we have in our current home.
My questions is what is the best way to structure the loan as initially when we buy this new home we will rent it out for a few years prior to moving into it with hopefully some kids and then subsequently rent out our current existing property. We would like to know how would we be able to claim back as much interest as we legally can on our loan and which property we should leverage up against more.
If i say I fully geared against my home at say 400K @ 0.80c = $320K and the remaining $180K against new home would i be able to claim all the interest? Also when i move to my new home what would the implications be  then as my new home will move from being an investment to owner occupied? Would i be able to clain any interest then?
Look forward to your thoughts.
Thanks
Lou
The security you offer the lender is neither here nor there it is the purpose of the funds which makes it deductible or not.
Cross collateralising the loans whilst not my prefered strategy would enable you to borrow 100% + costs and the entire interest would be deductible. You however would probably want to split the loans between the 2 securities as you have outlined.
However if you move into the new property the interest would not be deductible so you may want to consider transfering ownership of your current property into a Trust structure and borrowing 100% of the valuation. The raised funds can be then used to repay any loan that is not tax deductible whilst preserving the deductible status of your existing IP.
There are a couple of other considerations however certainly worth exploring.Â
Richard Taylor | Australia's leading private lender
Hi Richard,
Thanks for your prompt response.
Had a read of your comments as per above and have the following questions:
1. when should i transfer ownership of my current home into a trust? Would it be prior to moving into my new home?
2. Are there any capital gain or stamp duty implications?
3. By transferring the ownership of my current home into a trust in the future as it will become a long term investment vehicle how will i be able to borrow 100% of the valuation which is outside Banks policies.Thanks
Lou
Lou
Sorry it is not a straight forward answer.
1) You would transfer the security when you knew you were moving out so the funds raised could be used to finance a new property. Altenatively you would invest this in an 100% offset account whilst you were waiting for settlement.
2) Yes stamp duty is payable charged according to the State rate. There is no capital gain implications as the property was your original PPOR.
3) Yes you can sell the property at any price subject to being able to obtain a letterhead valuation verifying your sale price.There are a couple of other considerations but given the loan amount and your tax bracket it could be well well worth it.
Richard Taylor | Australia's leading private lender
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