Hello
I want to change both my PI loans to IO. Seeing as they are staying at variable interest I was surprised to learn that this was a whole new loan rather than just a small change to the paying arrangements. Is this right?
Both my loans have attached offset accounts which hold considerable funds. Since the loan repayments are based on not having anything in the offset account, I have in fact been paying off principle "in advance".
Now I want to change to IO so that I can accumulate cash more quickly as I want to have the possibility to put this into a SMSF.My problems is how do I handle this "paid in advance" money.
I don't want to take it out of the loan and put it into the offset account as I think this will contaminate the tax deductibility of this portion of the interest if I transfer this cash into a SMSF later. However, I don't want to reduce the size of the original loan either…. in fact I am thinking of getting new valuations (free under Pro package) and increasing the loan to the max, if they will allow it.So I guess the real question is, can I take out a big loan but not use the funds. Or can anyone suggest a different solution?
Sorry, I don't seem to be able to make this any clearer so please ask about anything that I have failed to explain properly.
Thank you in advance
ElkaHi Elka
You could take your loan to the max by splitting it with the new loan being separate then the existing – this can be IO or LOC. That way when you take the money out if can be separate from the other non deductible loans.
Is that what you are asking?
Terryw | 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
Hello Terry
Frankly, I am not sure. I will try again.
I don't have any non deductible loans. Both my loans are for IP's but being a "bad investor" I have been paying PI on them as well as having them coupled to 100% offset accounts. Talk about overkill. This was all set up before I learned better via this forum.
This is what I am intending to change now. i.e make them both IO with 100% offset accounts.
Due to the fact that I have had substantial amounts in my offset accounts I have paid off more of the principle than I needed to. Now that I need to get new loans (for IO) the question is for how much should I make the new loan.
As I see it I have 2 options.
1. I can take it out for the amount that I still owe.
2. I can take it out for the amount that I would have owed if I had not paid off extra principle. Lets say an extra $50K for example.What I want is option 2 but what to do with the extra $50K. I don't want to put it into the offset account ( along with the "clean" cash I have) as I think it will be seen as a redraw ? If I then take some money out of the offset account to put into a SMSF I will have problems with tax deductibility of the extra interest I will incur on the loan….. or am I wrong here?
The problem I see is, let's say I have $100K in the offset a/c. I now put the $50K in there too. A bit later I contribute for example $75K into a SMSF. Won't the ATO say that 1/3 of the extra interest I now incur on the loan is not tax deductible?
I can see that using option 1 and taking a LOC for the $50K should work right?. However it will cost unnecessary extra interest when I use the money to buy my next IP hopefully some time next year.
Are there other options?
Sorry to make it sound so complicated when it's probably dead easy.
With any luck it's at least given the MBs on the forum a good chuckle.Elka
Hi Elka
Its getting clearer now.
Changing to IO is pretty straight forward. But you want to access some equity and want to know what to do with it, I think?
Lets assume your loan was $100,000 and it has come down to $80,000. You would need to keep your IO loan at $80,000 as you have paid off $20,000.
You could then take a split, or even an increase up to 80% of your value. So say it is valued at $200,000, you could get a total loan of $160,000 which is $80,000 more. You should not take this as cash and put it in your offset as you will mix it with non borrowed money and this may complicate things if you wish to use it for investment and claim the interest. I would think it may be wise to put the money back in the loan (if you have redraw), then when you want to use it for investment you reborrow it again.
You could have a split, but it shouldn't really matter as your existing loan is for investment purposes and aportioning the interest will be easy with IO loans.
I Don't know much about super, but think you can borrow to pay into super in certain circumstances claim the interest too.
Terryw | 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
I dont know about that – but does anyone know how to get a stapler out of my head? – damn nuisance!
Terryw wrote:I would think it may be wise to put the money back in the loan (if you have redraw), then when you want to use it for investment you reborrow it again.
Of cause. That's exactly the right solution. I just couldn't think of it.
Thank you
Elkashane.barry28876 wrote:I dont know about that – but does anyone know how to get a stapler out of my head? – damn nuisance!Common problem. Try a staple remover.
Terryw | 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
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