All Topics / Help Needed! / Redraw Mess!!!

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  • Profile photo of enjolrasenjolras
    Member
    @enjolras
    Join Date: 2008
    Post Count: 1
    February 9, 2008 - 3:37 pm

    Hi guys.

    This is the scenario…

    1. I purchased my first IP (which was also my first property) 4 years ago using a P+I investment loan.

    2. I have been very diligent with my repayments, repaying well over and above the minimum monthly repayments (approx. $50,000 extra).

    3. I now wish to purchase my PPOR, and had the intention of redrawing the $50,000 additional repayments made under the investment loan to cover the deposit and incidentals.

    4. I am shocked and mortified to learn that the redraw (because it is going towards a private purpose) will also reduce the deductibilty of my investment loan.

    Is there ANY WAY to overcome this problem???

    What if I redrew the $50,000 to invest in low-risk shares (or even a term deposit account) for a few months THEN sold the shares (or closed the term deposit account) and THEN used the funds to help me purchase the PPOR?

    Any advice would be MUCH appreciated.

    Thanks!

    Profile photo of ToolsTools
    Participant
    @tools
    Join Date: 2003
    Post Count: 363
    February 10, 2008 - 2:22 am

    Deductibility boils down to the use of the funds. If you redraw 50,000 you will pay interest which will not be deductible. If you borrowed this money for your deposit, the same would apply. I know it is too late now, but you would have been better off putting the extra money in to an offset account which would have reduced the interest paid on the investment loan, but still kept the money ready for you to access without having to pay interest on it.

    Tools

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,213
    February 10, 2008 - 4:51 am

    There is no real way around it. You have paid down a loan so any redraw would be classed as new borrowings and the interest will only be deductible if you use the funds for investment purposes. That is why it is best to use only IO loans with a 100% offset account attached to at least one of your loans with any extra cash going into this account.

    Talk to your accountant about borrowing to pay for investment expenses such as insurance and rates. You can also ask them about capitalising the interest on the investment property. eg. Set up a LOC and pay the interest from this account. THis will free up your cash for using on the new home loan,

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://www.Structuring.com.au
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au

Viewing 3 posts - 1 through 3 (of 3 total)

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