I've read recommendations a couple of times that one should use a separate lender for your IP loan, and keep it separate from your PPOR loan. Also some have continued on and suggested separate lenders for each IP too.
Q1 – How important is it to use a separate loan provider for your IP from your PPOR? (it would be convenient in one sense to have them together no)
Q2 – How important is it to use a separate loan provider for each of your IPs? (I'm assuming here for this one it is not that important, noting that with the use of LOC potentially having the one provide / one loan for more than one IP might be financially better?)
Thanks
mixedup
I dont think it is that important at all however i do think it is opreferable to have the loans separate and not cross collateralised.
Structure is the most important part of the financing exercise.
Only reason you would switch lenders for you future IP's is if you had reached a servcieability limit with one lender or an alternative lender had a considerably better product at the time.
Richard Taylor | Australia's leading private lender
this make sense to me Richard – so if I wanted I could use the same lender for my IP as my PPOR, however I should make sure that I don't have my PPOR referenced in the loan as collateral, is this right? Instead I could use Full-Doc to prove income and only borrow 80% then.
The only other question would be in my case I need to redraw on my fully paid PPOR loan to get some of the 20% for the IP. Would the same lender see this as NOT adhering to myself funding 20% (i.e. would they try to hit me up for mortgage insurance)?
Not necessarily, the LOC is secured against the ppor, the 80% IO loan against the IP & your income + rent.
Just make sure you dont redraw on your PPOR loan but separate the loans so you can easily identity what is what when it comes to the annual interest time.
Richard Taylor | Australia's leading private lender
Just make sure you dont redraw on your PPOR loan but separate the loans so you can easily identity what is what when it comes to the annual interest time.
Richard Taylor | Australia's leading private lender
Qlds007 wrote:Just make sure you dont redraw on your PPOR loansorry – you threw me here Richard. Given I need to borrow a little (against my PPOR) to get the 20% for my new IP investment, then why wouldn't I just use my existing re-draw facility on my PPOR home loan? Following this approach this would satisfy the suggestions of making sure the IP loan does not use my PPOR as collateral. I checked with the ATO and as long as the interest is used for investment (which it would in this case) I still get the negative gearing tax benefit from the redraw against my PPOR (at least this was my understanding)…
True you do but when the loan is in one how are you going to calculate which interest each month relates to your PPOR and whay relates to investment.
It is a lot cleaner to use a LOC or a separate account and then you can clearly identify the different interest charged.
Richard Taylor | Australia's leading private lender
ok – so in this case however I guess you need to decide whether you (a) create this new LOC (against PPOR) from your existing PPOR lender, or (b) just use your new IP lender to create such a PPOR LOC. Perhaps the latter option (a) has less fees (?) as you're already establishing a new package potentially, but the former option (b) keeps the PPOR lender separate from the IP lender. Sounds like it doesn't really mater too much either way…
Hi Mix
I don't think it is important to have the loans with different lenders – usually. Even if you keep them with separate lenders, both will be at risk if you default on either loan.
I also agree with Richard that it is not wise to redraw from a PPOR loan for investment purposes as it will be hard to separate the interest. But there is another reason too. If you were to make repayments to this loan, the ATO would want you to attribute the repayment to both the investment portion and the PPOR portion in accordance with the percentages of the loan.
eg. If you have a $100,000 loan for your home and them withdraw $50,000 for investment. 2/3 of the loan is for personal use and 1/3 for investment. If you had $100,000 in cash you wished to pay off the loan, you could not just pay out the PPOR portion first. You must use 1/3 of the $100,000 to pay down the investment portion too. The only way around this is to have separate accounts for each.
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
Called my PPOR lender. Turns out better for me to switch to their basic variable rate loan for a better interest rate & less fees. I've already fully paid off my PPOR itself (i.e. the loan is really zero now, just have some re-draw capability on it) so I'm hoping this should be ok/clear for ATO.
mixedup
Hate to be the bringer of bad news but i have to say i think it would fail the ATO test on the "Original Purpose".
A redraw is not an acceptable purpose as the original loan was for non deductible purposes and your loan statement will
show "Redraw amount".Richard Taylor | Australia's leading private lender
Hey Richard – well that would be bad news
But really considering a lady from the ATO gave me the advice how do I really know. Any suggestions on what I would need to do to confirm the situation for myself? (look up tax laws if you think its clear / get a ruling / ask & trust one's account?)Fraid to say the telephone chicks at the ATO are notorious for poor information.
Richard Taylor | Australia's leading private lender
I did find this ruling…
https://www.propertyinvesting.com/forums/getting-technical/finance/4323792#comment-169207
Hi Mixedup
I clicked on the link in your post, but it brought me back to this post.
I agree with Richard again. Once you have paid into a loan, redrawing money is considered new borrowings and the interest on this new borrowings will only be deductible if the money redrawn is used for investment purposes.
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
in this case the redraw is for the deposit on the IP loan so that should be ok then no
sorry, put in the wrong link (copy/paste error) – try this:
http://law.ato.gov.au/atolaw/view.htm?rank=find&criteria=AND~interest~basic~exact:::AND~on~basic~exact:::AND~loan~basic~exact&target=JA&style=java&sdocid=AID/AID2002817/00001&recStart=21&PiT=99991231235958&recnum=37&tot=5225&pn=ALL:::ALL
Also look at this tax ruling:
TR 1999/D3
Income tax: deductibility of interest on moneys drawn down under line of credit facilities and redraw facilities
http://law.ato.gov.au/atolaw/print.htm?DocID=DTR%2FTR1999D3%2FNAT%2FATO%2F00001&PiT=99991231235958&Life=19990210000001-99991231235959Terryw | 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
But really considering a lady from the ATO gave me the advice how do I really know. Any suggestions on what I would need to do to confirm the situation for myself? (look up tax laws if you think its clear / get a ruling / ask & trust one's account?)You must be logged in to reply to this topic. If you don't have an account, you can register here.
