Hi all,
I'm currently in the process on refinancing my 2 loans. On my PPOR i have about 120k owing, and on the investment about 105k. Value of both together is approx 400k. So i have a bit of equity in them. I'm currently paying interest only on them, and want to continue paying IO as i am planning to rent out my PPOR in the next year or so.
To cut to the chase, my investment prop. is an over 55's unit. This seems to be effecting my new lender a bit. This is what they have to say:
My manager is suggesting we refinance the whole loan amount (the total of $225,000) but in effect we are paying out the investment portion of your loan ($105,000) because you have enough equity in your owner occupied property. The reason is to avoid using the investment property as security as it may not be an acceptable property for the loan.You just need to check with your accountant whether this would affect your abillity to claim the interest portion for the investment as a tax deduction.So the important question is the last sentence in blue. How will this effect my tax claims on the Investment for the time being, and will it be a hassle down the track when i make my current PPOR a rented property. What kind of setup paperwork wise would i need for this to be easy at tax time etc.
Any help is appreciated, i have about a month while waiting for paperwork to make up my mind. Basically he didn't want to charge me extra $ also to get the 2nd Property valued etc, if i wasn't going to be able to do this.
Thanks guys,
MichaelIt won't effect the deductibility. Interest deductibilty is determined by what the funds were originally used for.
If you take out one loan of $225,000, only the portion related to the purchase of the investment unit ($105,000) would be deductible. ie, 46.7% of your interest on the new loan would be deductible.
Just make sure the loan is split so you get two statements.
Banks like to stitch you up to as much security against a loan as is humanly possible !
Here is what I would do
PPOR Value = ?
PPOR Loan = 120k
I would get a line of credit loan against 80% of PPOR value – PPOR Loan
LOC=PPOR Value * 80 / 200 – existing loan
(it is usually 80% LVR for an LOC loan)I would get a line of credit loan against my existing investment property
investment prop Value = ?
investment loan = 105k
LOC2=invest prop value * 80 / 100 – investment loan existingThen I have a deposit for my next investment property of LOC + LOC2
I would factor in also for Stamp duty, maybe mortgage insurance and prob about $1200 for extra costs like legals , inspections for next propertyI would use a mortgage broker and he would organise another lender for me.
Why would I do it this way you might be asking
I have separated the security of all three properties. If I get into trouble I may lose one house to a bank
where as if all are the one security for loan I could lose all houses.Also
Using an LOC loan separates the PPOR private purpose loan from the new Investment Purpose LOC loan.
Also if you change the status of the PPOR to investment later it is not going to be difficult to claim the original PPOR loan as an investment loan.When you have some spare time you will find this topic has been discussed before and might want to read the following links
https://www.propertyinvesting.com/forums/community/opinionated/14459?highlight=cross%2Ccolaterisation
https://www.propertyinvesting.com/forums/getting-technical/finance/22899?highlight=cross%2Ccolaterisation
https://www.propertyinvesting.com/forums/property-investing/general-property/4326464?highlight=cross%2Ccolaterisation
https://www.propertyinvesting.com/forums/getting-technical/finance/4331618?highlight=cross%2Ccolaterisation
https://www.propertyinvesting.com/forums/getting-technical/finance/20497?highlight=cross%2Ccolaterisation
https://www.propertyinvesting.com/forums/property-investing/help-needed/18692?highlight=cross%2Ccolaterisation
https://www.propertyinvesting.com/forums/property-investing/help-needed/18431?highlight=cross%2Ccolaterisation
https://www.propertyinvesting.com/forums/property-investing/help-needed/17292?highlight=cross%2Ccolaterisation
https://www.propertyinvesting.com/forums/getting-technical/legal-accounting/16826?highlight=cross%2Ccolaterisation
https://www.propertyinvesting.com/forums/getting-technical/finance/14374?highlight=cross%2Ccolaterisation
https://www.propertyinvesting.com/forums/property-investing/help-needed/13828?highlight=cross%2Ccolaterisation
https://www.propertyinvesting.com/forums/property-investing/help-needed/13635?highlight=cross%2Ccolaterisationbalniks wrote:Hi all,I'm currently in the process on refinancing my 2 loans. On my PPOR i have about 120k owing, and on the investment about 105k. Value of both together is approx 400k. So i have a bit of equity in them. I'm currently paying interest only on them, and want to continue paying IO as i am planning to rent out my PPOR in the next year or so.
To cut to the chase, my investment prop. is an over 55's unit. This seems to be effecting my new lender a bit. This is what they have to say:
My manager is suggesting we refinance the whole loan amount (the total of $225,000) but in effect we are paying out the investment portion of your loan ($105,000) because you have enough equity in your owner occupied property. The reason is to avoid using the investment property as security as it may not be an acceptable property for the loan.You just need to check with your accountant whether this would affect your abillity to claim the interest portion for the investment as a tax deduction.So the important question is the last sentence in blue. How will this effect my tax claims on the Investment for the time being, and will it be a hassle down the track when i make my current PPOR a rented property. What kind of setup paperwork wise would i need for this to be easy at tax time etc.
Any help is appreciated, i have about a month while waiting for paperwork to make up my mind. Basically he didn't want to charge me extra $ also to get the 2nd Property valued etc, if i wasn't going to be able to do this.
Thanks guys,
MichaelI agree with Disco Stu (Dan). It shouldn't matter for tax deductibility. Just make sure the loans are not joined together – ie keep the two separate, but secured by the one property.
The freed up property could then be used later on to get access to equity for further investing.
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,
Thanks a heap guys
You must be logged in to reply to this topic. If you don't have an account, you can register here.
