All Topics / Legal & Accounting / Get a Separate Equity loan against existing Owner occupied home

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  • Profile photo of RanilRanil
    Participant
    @ranil
    Join Date: 2010
    Post Count: 3

    Hi

     

    I would like to get some advise on the following scenario.

     

    I am planning to upgrade to a bigger house,

     

    My existing house is worth 335K and there is a loan balance of 100K

    I do not want to sell my house but want to keep it as an Investment Property.

     

    My initial thinking was to use equity of around 210 K to buy a investment property and live in the current home, So I already have a separate equity loan of  210K(Interest Only) with $0 Balance because I have not used it.

     

    Can I use this to Use the second house and  I move in to that and rent out my existing house ? I will have total of 100K(Interest Only) + 210K (Interest Only) = 310K loan secured against this house.

     

    Is there any tax implications if I do this ?

    Profile photo of omegapartnersomegapartners
    Member
    @omegapartners
    Join Date: 2010
    Post Count: 17

    Are you saying that you will use the $210k to purchase a property which will become your principal place of residence and then you will rent out your existing home ?

    If the answer is yes then the interest on the $210k will not be deductible as the purpose for which the funds were put was to purchase your new principal of residence for which the interest is not deductible.

    You could borrow the $210k to buy the new property and rent it out to someone else and then the interest would be deductible as it is your new investment property. However converting your existing residence into the investment property will mean none of the interest is deductible.

    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 12,024

    Think you might have misunderstood the post

    However converting your existing residence into the investment property will mean none of the interest is deductible.

    This is not the case as the interest on the100K existing balance will be deductible when you make the property available for rent.

    Is the current property solely by you or with a partner. If so you could look at a spousal buyout.

    Depending on the location of the property you mighty trigger partial Stamp Duty however would be worth do the numbers.

    Cheers

    Yours in Finance.

    Richard Taylor | Australia's leading private lender

    Profile photo of omegapartnersomegapartners
    Member
    @omegapartners
    Join Date: 2010
    Post Count: 17

    Agree richard missed the bit were he said that there was an amount of 100k outstanding. That portion will become deductible.

    Profile photo of RanilRanil
    Participant
    @ranil
    Join Date: 2010
    Post Count: 3

    Thanks for the advise, but my argument is I am keeping the property as an investment and both loans are secured against that property, like having two loans secured against one IP ….

    current property solely by my name … how does  spousal buyout work ?

    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 12,024

    The security is not the issue or what decides whether the interest is deductible more "the purpose" of the funds.

    You could secure the whole loan against a moped if the lender accepted that as security if the funds were for investment.

    In regards to your spouse is she employed on a higher Tax rate than you ?

    Cheers

    Yours in Finance

    Richard Taylor | Australia's leading private lender

    Profile photo of RanilRanil
    Participant
    @ranil
    Join Date: 2010
    Post Count: 3

    Hi Richard

    Thanks for the reply, My wife works part time and  and she is in the lowest tax bracket, I am on the 30% bracket at the moment.

    Cheers

    Ranil 

    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 12,024

    Ranil

    Your wife could look at purchasing 50% of the current PPOR from you and then you use the raised funds for deposit on the new property. Not sure about NSW but there maybe some Stamp Duty payable.

    In saying this you need to work out whether the Stamp Duty cost is outweighed by the interest savings on the new property.
    From my initial numbers i would have thought it would be.

    Your Banker or Mortgage Broker can help you with this.

    Cheers

    Yours in Finance

    Richard Taylor | Australia's leading private lender

    Profile photo of a_bwassa_bwass
    Participant
    @a_bwass
    Join Date: 2008
    Post Count: 3

    I have a similar situation where I am better off buying my wifes half from her ie. IO loan for half of property value  (IP was PPOR is completely paid off with LOC) and paying the stampduty accordingly.  However, I am interested to know if I can actually buy the house from both my wife and myself and pay the full stamp duty, therefore maximising the tax-deductable interest component–funnily enough this actualy works out better than all other scenarios (According to my calcs).

    Anyone with any thoughts or other scenarios worth considering??

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,213

    How can you buy from yourself?

    You can sell something you own to yourself as trustee though. Then you will have problems with losses trapped in the trust though.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://www.Structuring.com.au
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au

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