Hi,
My current property is worth 365k and i owe approx 295k. I have started to make inquires about financing an IP and have been told the following:
The bank that the existing mortgage is with will lend me 90% of the current value i.e. 329k, therefore i will have 34k available to use for start up costs on the new place and this money will be lent under the same terms of the original loan (IO with an offset). I will then need to get a separate loan to finance the rest of the property value.
My questions are:
- Is the 34k loan separate to my 295k loan or is it an extension of the loan i.e. are the interest payments on the 34k part tax deductible
- Is this the best finance structure to use. i have approx 50k in my offset account that i could use if required but would rather not as it is reducing my non-tax deductible debt
any help would be really appreciated
Thanks
Hi
Certainly a separate loan account or split for the new amount will have its own calculations for interest and the purpose it is to be used for will determine the tax application to this account.Regarding your offset amount you may wish to consider lowering the home loan amount by $50,000 and making the investment split for $84,000
With the refinance you will most likely be liable to pay a lenders mortgage insurance and unless you have previously had the loan amount at 90% then this fee will be applied to the total loan amount including the existing amount.
Regards
Craig
Hi Zizzuu,
My wife and I are currently in a similar situation so the following may help:
We are just going through the process of purchasing our first IP at the moment with our home prob worth upto 400k (but hasn't been revalued yet). We have an IO loan but as a line of credit (portfolio with St.George) with a current balance around 225k. I wouldn't extend your loan past the 80% mark or as BrisBroker said you'll be up for mortgage insurance which essentially is for the lender's benefit although it does allow you to borrow more – and I have also recently found out some lenders have a higher level at 85-90% without requiring the insurance. As above also, the amount you use from your current loan to fund your new IP should also be tax deductable.We considered 2 options – stay with St.george with the variable rate we are on and the unit we are buying would become a sub-account OR use the available balance for deposit and costs and establish a new loan. I'm sure there's a stack of other alternatives too!
Our other concern was whether to fix all or part of the loan(s). We are now waiting for offers from Suncorp and Bankwest to see who will offer us the best/most suitable deal. I could probably start my own thread to ask people about our situation too
but back to you…I think the common approach is to keep all investment loans (at least) as IO and maxed out to put as much back into your non-deductible loan as you mentioned. Fixing I guess always comes down to how comfortable you are in repayment certainty.
As for us – although our exit fees will be high seeing as our loan is only 2yo – with more interest rate rises predicted and a better offer on the table: we'll most likely refinance and fix the total investment portion of 280k + 80% of our remaining loan for our PPOR.
That's all for now! More than happy to clarify anything here
Cheers
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