Hi, we have a propoerty in Vic (postcode 3882) that we lived in for 15 months then have rented out for the last year. We borrowed $175k (bought $225k) and fixed the loan at 7.3% principal & interest. We moved back to Melbourne and have been renting.We now owe $170k.
We are now itching to buy a PPOR and switch the existing home loan to interest only and release equity. I estimate a bank valuation on the property would be $240k conservately (we did a lot of improvements).
Is someone kind enough/able to explain what are options could be please – can we still only refinance for 80% of value (we wish to change lenders – not happy with current bank).
Of course I have spotted a lovely unit that would be ideal for us to buy *sigh* but are we stuck until our fixed loan expires in September 09? Ty MareeHi
You could possibly increase the loan to 90% LVR and maybe even 95%. If you refinance this will lead to break costs from your fixed loan, which could be hefty, but you would end up with a lower interest rate.
For tax purposes the extra money borrowed will not be deductible if used for the new PPOR. You can only claim the interest on the original $170,000 portion. So I would stop paying this off if you can, and then keep your cash for the new place.
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
If you could get a line of credit loan you probably could borrow 22,000 for a deposit on the ppor as line of credit is usually up to 80% of the value of the house. existing loan + 22,000 = 80% of $240,000. Still would not be able to claim LOC as tax deduction as use for private purposes.
Another point of interest is that you may require a valuation on the rental property for 12 months ago as if you are renting it out for a long time period say 10 years as an example and you decided to sell it, it is going to be messy trying to work out what the house was worth between when you purchased it 27 months ago and what it was worth in 2008 when you changed it to a rental now that it is 2018. (you jumped in your time machine)
You need to isolate the period of time and value of the house that is capital gains tax exempt due to PPOR and the part that is not exempt 2009 – 2018 capital gain due to renting it out and keep records of it for 2018 or longer.thanks Duckster – would that be claimable? Assuming it would? Could the valuation be used by the bank for the refinancing.
Maree
Deductibility depends on the purpose the funds are used for. If you set up a LOC and use the funds to buy a new property to live in, then you can't claim the interest on this.
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
thanks Terry. The unit we are looking at is $340k, I think we may have to tread water a little bit longer to be in a stronger positon – get our tax return back and be closer to the end of our fixed rate. Don't think a seller is going to want a 7 month settkement……
Maree
Rather than loose the property why not split the loan:
1) Top up with your existing lender to 80-90% and use the funds as deposit on the IP and acquistion costs.
2) Balance of the IP loan with new lender.
When the fixed rate expires you can always refinance the main loan over to the new lender as the fixed rate will have expired.Richard Taylor | Australia's leading private lender
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