Hi to all
I've bought a townhouse as PPOR last Nov 2007 for 330k with the intention of renting it out within a year / year and a half after purchase. My loan for this is standard variable 97% loan P+I. If I decide to rent it out and buy a new home, I would need to convert the loan to IO so that the tax deductions for interest are clearer. Questions are:
1. If I convert to IO plus offset, can I claim the interest?
2. What fees are involved to convert my loan?
3. Would I be paying LMI again?
4. What would happen to the principal that I paid?
5. For a townhouse built 8 years ago, what sort of depreciation would I be expecting?The other scenario would be for me to buy an IP this time. What are my chances of buying an IP? If I use the online calc, it says I could borrow 320k (including rent for the IP). I have an income of 130k and 3 dependents. 700/mo. car loan. 10k credit card limit. Will I be eligible for a loan? Is 320k realistic?
Thanks for the replies in advance
TriggerMan
Hi Triggerman
Welcome to the forum and i hope you enjoy your time with us.
Couple of quick answers:
1. If I convert to IO plus offset, can I claim the interest? Yes you can on the balance.
2. What fees are involved to convert my loan? This will depend on who your lender is and the terms of the contract
3. Would I be paying LMI again? No but might have to pay an adjusted premium.
4. What would happen to the principal that I paid? This will merely stay as a principal reduction.
5. For a townhouse built 8 years ago, what sort of depreciation would I be expecting? Hard to answer without knowing the original construction cost. If you worked on around $1000 / sq Metre for something built 2000 you are not going to be a million miles away.Subject to you coming up with a deposit and acquisition costs then you would appear to qualify for a new IP loan.
Richard Taylor | Australia's leading private lender
Thanks Richard, Can I use the fortnightly payments that I made to the bank to finance the deposit for an IP/ new home considering that I've only been here since Nov. 2007? Will there be any tax issues? How much is the adjusted premium?
Triggerman wrote:Thanks Richard, Can I use the fortnightly payments that I made to the bank to finance the deposit for an IP/ new home considering that I've only been here since Nov. 2007? Will there be any tax issues? How much is the adjusted premium?
You will have to be careful of stamp duty charges – bought as PPOR – exemption would have been received – check the time required to pass before change of use doesn't require repayment of exemption.
CGT in future when property sold – either apportionment time as PPOR vs time as investment – obviously will be mostly investment if you continue to hold the property – or get a few valuation appraisals to determine "investment purchase price" at point of change of use.
Remember to change the insurance from owner occupier to landlords insurance.
Depending on your overall situation could consider sale of first property to a trust with you and family as beneficiaries to release as much equity for PPOR purchase to make sure minimum non deductible debt. This will very clearly make the change of use – however stamp duty as investment property payable.
Sorry WA with an initial 97% LVR and with P & I repayments for less than 9 months how would this be beneficial ?
Depending on your overall situation could consider sale of first property to a trust with you and family as beneficiaries to release as much equity for PPOR purchase to make sure minimum non deductible debt.
The Stamp Duty irrespective of the State in which the property is located would not make this worth it and dont think should be treated as a course of action to be considered for Triggerman.
With regards to the other 2 questions:
1) You could use any advance payments within the loan as deposit but remember the interest on the amount redrawn is not tax deductible so would need to be a separate loan.
2) The additional premium will vary from lender to lender but in some case LMI on a P & I loan is slightly more expensive than an IO. All depends on with whom you loan is with.
Richard Taylor | Australia's leading private lender
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