Hi
Seeking advice please.
We are about to purchase an IP for $575K which we’ll turn to be our PPoR in 2 years. We have the option of purchasing with 10% deposit and pay a Mortgage Insurance of around $10K, or put a deposit of 20% with no Mortgage Insurance.
We have $60K which we can redraw from to cover the 10% deposit.
We have the other $60K which we can take from our offset account (currently against our PPoR which we are paying P&I for). In 2 years time, we’ll convert this PPoR to be an IP.
I tried to do the calculation of the pro & cons of two options, but not 100% confident that I have it right.
I believe Mortgage Insurance on an IP is tax deductible, but over 3 years period?
Could anyone help please? Am I right to say that we are better off using the money from our offset account to make up the other 10% deposit instead of paying a Mortgage Insurance?
Thank you very much!
Nani
Email MeThe road to success is always under construction
Hi Samson
Wow hold on there such a loan is not so simple and there are many considerations before you rush in.
Just to correct a couple of points:
1) Interest on a redraw is only deductible where the funds are to be used for investment however you would set up a separate split account rather than merely redraw funds on your PPOR.
2) LMI is deductible over 5 years or the term of the loan whichever is lesser however only deductible whilst the property is used for investment.There are a few products out there where you maybe able to get a 90% with a fee instead of LMI which maybe cheaper and also a couple of other options to structure the loan over a shorter period of time to maximise your Tax deductions.
Also you need to consider what you will be doing with your existing PPOR once you move into the new one.
Personally i would get your mortgage broker to look at all of the options for you first before you rush in as it could be a very expensive mistake in the long run if you dont.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Thank you, Richard.
Yes, the redraw will be set up as a separate loan to our PPoR, so the interest can be deductible. The plan is once we move into the new one (in 2 years time), we’ll convert our current PPoR to be an IP. We have asked our mortgage broker, but the solution she came up with was either a 10% deposit with LMI, or a 20% deposit. Hence our dilemma. Perhaps we should have researched your service for options first!
Nani
Email MeThe road to success is always under construction
Hi Samson
Ok wont be a redraw then.
Hate to say many mortgage brokers havent even paid off their own PPOR let alone bought a few dozen IP's and that the standard answer you get from most.
Good luck in what you decide.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
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