Some advice would be very appreciated
I am buying a new IP house and land package soon. I plan to fund 20% with a LOC and 80% with another Bank, sell my PPOR and upgrade to another later this year. I understand I will have to pay out the LOC once my house is sold.
Can I get out another IO loan against the new PPOR so I don't miss out on that claimable 20% portion of the loan? Was reading somewhere that the ATO might consider the 20% portion "tainted" once it has be paid off and there's no going back. Doesn't sound right to me.
so long as you pay out the old loan from the new loan it will be deductible…
Mr 501
Thanks, I probably wont be buying and selling in the same time frame.It could be 3 to 4 months between selling and buying the new PPOR. You mentioned to pay out the old loan ie LOC from the new loan, is that still possible in my position?
Arh, do you mean I get out a separate IO loan to pay out my LOC when I sell my PPOR?
The test for deductibilty of interest is what were the funds used for. If you pay out the 20% LOC on the sale of your PPOR, then that loan is paid out. Any new loan will have to satisfy the same test.
If you borrow the same 20% again, what would the funds be used for? They wouldn't be used to buy the IP, as the IP has already been purchased.
As Mr501 mentioned, you could get a new LOC presumably secured against the IP, to pay out the current LOC, but this would be dependent on the equity you have in the IP. More than likely, you would be required to pay mortgage insurance as it would take you over 80%.
That's the only way around it.
Actually there’s another way.. most banks will take cash as security for a loan.
If the 20% of the IP secured against your PPOR is $100k, when you sell the PPOR, rather than using the proceeds to pay out that 100k, put 100k in a separate account. Then let the bank take that 100k in the account, as security against the 100k they’ve lent you. Then when you buy your PPOR with the remainder of the proceeds of the sale of the old PPOR, refinance the 100k for the IP with security against your new PPOR, and you will have access to your 100k deposit again.
I’ve done this myself it will work.
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