Hello everyone,
I'm new to this forum and currently researching property investing for the very first time. My partner and I have just bought our first PPOR in 2008 and is currently valued at $430,000 (based on neighbour’s recent sales) and owe $362,000 (P&I loan) with $40,000 in offset account (interest calculated on$322,000).
We are looking to start our investing strategy of buying & renovating. Can I please have some advice on structuring for our first IP (IO loan).
My question is whether I should fund $40K from offset acc. to my P&I loan and redraw from there to fund for my deposit & reno cost for my IP so the interest from the redraw is tax deductable? Or just use the $40K to fund my deposit from offset acc
Or is there any other way to structure this
I would much appreciate any help.
thanks
CJ
You shouldn't use your money in the offset as the interest on your home loan will increase.
If you put it in your home loan and then redraw this is better but still not ideal as each subsequent deposit into the home loan will be decreasing this investment loan (the money redrawn).
The best solution is to pay down your home loan and then to ask your bank to set up a new split for you.
THen for the next investment loan you can borrow X% from the same bank or different bank with the deposit and stamp duty coming from the new split you created. All investment loans should be interest only for as long as possible.
That is the ideal way to do it, but your LVR will be over 80% so a bit of mucking around, you may even have to pay PMI again if you pay the loan down and then set up the split above 80% again.
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 for your advice. I know very little about loan splitting, would you mind explaining how does loan splitting works?
With regard to the point that you made about using the deposit and stamp duty from the new split, does it mean that we create a line of credit from the split and access the fund from it?Also if we paid off the home loan down to approx. $320k using funds from our offset account, how much should we split the loan?
Sorry to ask stupid question !! I have done a lot of readings on the internet but i think the advice given is not as good as in this forum
cheers
CJCJ
Assuming you wanted to utilise the entire $40K you would pay down $40K from your PPOR mortgage and then look to take a LOC back upto 90% of the current market valuation.
Of course if 80% is sufficient and it means avoiding LMI then you would reduce the loanaccordingly.
Once you had the valuation back you would have an idea as to the available Line of Credit and could see what LVR you would need on your new IP.
Richard Taylor | Australia's leading private lender
Thanks for your advice Richard, are you suggesting another way of structuring this or is it similiar to split my current exising loan. Sorry am a little confuse.
cheers
CJI was suggesting you split the loan like Richard said. Pay down the loan and then reborrow the money again, but have this new portion as a separate loan.
But you have little equity at the moment and it may not be feasible to do it this way. It may result in LMI again if you borrow more than 80%.
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
cheers guys, maybe I need to rethink going towards getting my first IP for now and wait until I have enough equity to do so.
Meanwhile,keep myself educated!thanks!!!
Heh CJ
From the figures you have given i think you are almost there now.
Richard Taylor | Australia's leading private lender
Can anyone see anything wrong with this structure (used from what I have understand so far)?
PPOR $430k(100%) with $322k (loan amount)
I am trying not to exceed 80% of the total value PPOR to avoid LMI (which is not tax deductible)
80% of total value is $344k
Maximum LOC I can withdraw is $344k-$322k = $22k (use as deposit for IP)
I assume I can borrow up to 95% / 90% +LMI (which is tax deductible) for next IP. (Will any lender actually borrow that much in current financial situation?) Both our combine income is more that 100k per annum.
cheers,
CJ
Figures look correct – Again, just remember to take this $22k out as a seperate loan so that claiming the deductible interest will be much simpler at tax time!
Any lender will borrow that much, but what you want is for them to lend!
And yes there are still lenders who will lend up to 95%, though 90% is more common.
LOCs are usually 80%, though some are up to 90% with LMI.
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
Looks good YoungInvester.
At least you've got some equity in your house.
My partner & I also brought our house in 2008. We purchased the property for 345k and still owe $320k!!!
We're thinking of buying our 1st IP but both with low incomes (90k pa) and a massive debt we might have to sell our house and move back at home.
Good Luck!
MY
Thanks guys. Will try to hunt down the lenders who can lend up to 95%.
knowledge is power totally agree with you YIcheers
St G, Westpac, Suncorp can still
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
They can but will they is the question.
NAB thru their 4 star brokers will but normally want P & I over 90% lvr
Rock & Bank W will but try and get a deal approved.Westpac insist you have other accounts or credit card with them and then they will look at.
I think you need max patience to deal with Suncorp.
Richard Taylor | Australia's leading private lender
Yes, its not easy. St G will also want you to have been a customer for at least 6 months, same with Westpac.
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 that case maybe i can go back with CBA and ask for 95% since I am their existing customer.
Sorry to so many questions, whether anyone knows the different between topping up existing loan back to 80% and LOC?
Are they in theory the same?Thanks
LOC is a particlular product. Each bank has slight differences- could be that it has a cheque book included, not necessary to pay the interest each month (capitalise) etc.
There are also very important tax consequences between using a LOC and redraw or topping up an existing loan. You should neve do it if it will mix personal and investment debt.
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
Richard, What is Rock?
Rock Building Society based out of Rockhampton.
Richard Taylor | Australia's leading private lender
You must be logged in to reply to this topic. If you don't have an account, you can register here.
