Hi All,
Long time lurker first time poster
So basically I'm looking to release some equity out of my PPOR to fund the deposit and costs of my next investment property and just wondering what is the best way to do this and why? Last time I did this I just released the equity and kept it held in my offset account until I found the specific property and was planning to do the same this time.
This time however I have heard alot of people talk about and reccomend LOC's but I dont understand the benefits. So was wondering if there is any advantage to using an LOC as opposed to the straight equity release above?
Isn't the interest rates on LOC's marginally higher?
Thanks inadvance for your advice.
MrM
You should be careful about borrowing money and putting it into an offset account and then investing it. The connection between the borrowing and the investing can be broken and the tax deductibility denied in some cases, especially if it is mixed with other funds.
A better way would be to use a LOC as the money is available but not used until needed and no interest until it is drawn out. interest rates can be higher, but it is much safer from a tax point of view.
Another cheaper way would be to use a IO loan with free redraw and then borrow the money at settlement and redeposit it in the loan account until it is needed.
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
With an LOC you go to the bank and apply for an amount you can borrow based usually on 80% Loan to Value ratio.
So at this stage haven't borrowed the money but set up a facility where if you need the funds quickly you can transfer them out of your LOC account to your savings account – Now after the transfer you have borrowed money. So no need for an offset account to park the funds as they are available when you need them as you would have already applied for the LOC facility.
It can also be used to separate loans.
At tax time your LOC represents investment loan interest where as trying to work out the amount on the equity release would be harder.
Sometimes you might need more than one LOC account which some banks allow
So you could have an LOC account for an investment purpose and another LOC for Private use.Not 100% sure but I heard that equity release doesn't need to be paid back and a lot of them are designed for pensioners that are sitting on huge equity but can't afford to eat or go on a holiday or fix up the house ,ect
They are sometimes called reverse mortgages.
You must be logged in to reply to this topic. If you don't have an account, you can register here.
