Hi all,
If I have a mortgage on a property in which I live (P1) and this mortgage has a redraw facility but no offset account, and I make additional payments over time, my understanding is that if I choose to redraw these additional payments for use as a deposit on a new residence for myself (P2) and rent out P1 then I will be unable to claim deductions on the interest charged on the redrawn portion of the P1 loan. But…..
…What if I redraw the full amount available to me, then refinance the full amount of the P1 loan with a new lender, then use the redrawn money for a deposit on P2, and then finally rent out P1
Would this process allow me to claim deductions on the full value of the P1 loan, including the portion that was once redrawn?
Cheers,
MP
Michael, you'd probably be paying fees for the sake of not much benefit. As the purpose of the redraw is for another investment, the interest on the new borrowings would most likely be deductible.
You may be better off refinancing first, with a new offset and LOC and avoid restamping the loan.
Redraw = borrow.
So if you redraw money and then refinance with another bank this won’t change anything. The extra portion is still borrowed and the interest on this portion will only be deductible if you use it for investment related stuff.
I would advise you to get an offset account asap and avoid the problems.
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
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