Hi – I've just recently joined this forum and this is my first post. I have hunted around for the answer to my question prior to posting, but I'm not sure I found this answer so I'd like to post this and get some advice if possible.
I bought my current PPOR apartment for 230K in 2001 and have lived in it since then. My outstanding loan on it is 190K and it could sell today for 320K.
I believe this means that I currently have 66K equity in this loan, worked out by saying (0.8* 320)-190 = 66K.
I'm looking at buying a new apartment for around 400K. I would move into that new apartment as my new PPOR and convert my 'old' apartment into being an investment property by renting it out.
Hypothetically – if the new apartment I buy costs 400K, and I've got 20K worth of costs (stamp duty, mortgage insurance etc) therefore I need another 420K.
I've spoken to a mortgage broker and he's recommended as follows:
My total loan that I now need is 190 + 420 = 610.
We would close down my current loan of 190K at it's current bank because the interest is too high at this bank.
At a new bank, open two more loans. One for 230K – the original purchase price of the investment property. Interest on this loan would be fully tax deductible.
The second loan would be for 380K for my new residential property.I'm a bit worried about the statement that I could take the IP loan out for the full 230K and that all interest on that would be fully tax deductible.
Perhaps I've misunderstood previous posts, but I'm sure I read somewhere that this is not actually legal, as part of this loan was already paid off when the property was not classified as an IP but as a PPOR.
So in essence, my question is, would I really (i.e. legally) able to claim all interest on the 230K as a tax deduction?
Can someone please explain/verify this for me? I'm confused…..
Thanks in advance.
I would be running a mile if your Mortgage Broker has given you that advice.
You could only claim the interest on the current balance of $190K.
I am assuming that the property is owned solely by yourself and there is no Mr or Mrs Christinah ?
if there is there are Spousal buyout options.
Richard Taylor | Australia's leading private lender
Thanks so much, Richard, for responding to my question.
I wonder if I misunderstood what the mortgage broker was telling me? It seems odd that he'd give advice that was illegal…..
I'm yet to receive his written email outlining the options we discussed, so there is a chance that I misunderstood what he was saying, I guess……
No, there isn't a partner involved in these properties.
Thanks again so much.
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