Hi all.
A friend of mine had her first property settle in December (Victoria). She was entitled to the FHOG and used this towards deposit.
The property is currently tennanted and in accordance with the regulations regarding the FHOG she intends to move in to the property within 12months of the settlement date for a continuous period of 6 months. As such she will move in to it some time around the 360 day mark which is in Dec 2010.
If she pre pays 12 months worth of Mortgage repayments on June 30 this year (taking repayments through to Jun 11) will she be able to claim all 12 Months worth as the Pre payments were made whilst it IS an investment property or will she only be able to claim 6 months worth as technically 6 months of those repayments will be for when it is PPOR come Dec 10.
Thanks
Make sure you are prepaying interest – not simply repayments in advance.
Generally you will need a fixed rate so the bank can calculate the exact interest charge for 12 months. You can not really claim for whilst the property is PPOR. If you claim the full amount you may find yourself having to make an adjustment to your return.
But there wouldnt really be an adjustment being made as you wouldn't be claiming anything whilst its a PPOR. ? .
What is the difference between prepaying interest and repayments in advance? The loan is IO.
Thanks
I take that back I can see why an adjustment would need to be made.
What my friend wants to achieve is to basically pay 6 months worth of repayments (then not have to worry about it monthly) for when it becomes PPOR for the 6 month period. It will be then rent out again the next day after the 6 month period.
If your loan is interest only and you pay 6 months worth of repayments- the balance of the loan will drop. Therefore you have just made a payment off the priciple which is not deductable. You need the interest to be charged so it appears in your statement e.g. If you have a loan of 300k fixed at 7% they will charge a one off interest charge of 21k. If this appears in your statement before end June it is an actual expense occurred within the financial year.
If you simply pay 21k into the loan. The balance would drop and interest would still be charged / capitalized monthly – therefore will not occur in the tax year you are looking for.
Thanks. So you just ask your bank or broker to organise this?
If it isnt a fixed rate do they make it a fixed rate for that period only? Or are they just grateful to have the money 6 months early (which they should be grateful for) and its calculated at the customers regular rate.
To prepay interest most banks will need you to have a fixed rate – so they know what to charge for 12 month interest. I dont know who would do 6 month. Usually min 12z
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