Hi All
I am currently in the process of refinancing my PPOR. Last year valuation was 310K and I took 80% of it (248K). Over the last 1 Year I have paid around $1K as half portion of the loan was still P&I.
My question is with the new loan structure I should have. New valuation has come to 340K which means I will borrow 80% of it $272K now. Should I setup separate loan account of $24K (272K-248K) as this is the difference of valuation or I can setup the difference of 272K and the loan amount left now which is $247K. This means I can setup this separate account with $25K. I will keep the same amount in offset and can use this later for another IP purchase.I guess my question is what is the new loan account I should setup so that I can use funds (in its offset) for future IP purchase
Please advise. Thanks
You solved your own question
Ur set up is fine.
1. Separate account for the 25K
2. the funds to go into a offset account ( make sure you have a separate offset account for this IP loan,,,, adding this top up cash to your current PPOR offset could be seen as tax evasion- transferring deducible debt to non-deducible one)Regards
MichaelMick C | Shape Home Loans
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Thanks Michael.. This is bit confusing for the beginners
I was under the impression once money has been paid off into loan (either in P&I loan or into Redraw), I have loss tax deductibility on the amount forever. But now I understand that by refinancing and topping up loan to 80% or 90% LVR (whatever required), we can create new loan account to use for investment purpose. These funds will be combination of re-borrowing paid amount and increase in equity over a period of time. I hope I am correct with my understanding now.
I will setup this loan account with 25K now and as you suggested put this 25K in the offset for this future investment account and not in the PPOR offset.
Hi Amsaini
How is your current loan structured? Is it just one P&I loan of $248k at present?
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
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Jamie,
Currently I have 3 loan accounts 107K (IO), 95K (P&I) and 45K (IO) (This is for my 1st IP purchase in 2010)
Moving on to fix up the mess I have created earlier, I will combine 107K and 95K loan account into one , will leave 45K one as it is and create a 3rd account with the increase roughly 25K. This will be used for future IP or PPOR purchase. All account will be IO now and offset attached to 202K account (which will keep my extra funds and 25K account with 25K parked in it.Any suggestions for me? Thanks
amsaini15 wrote:Thanks Michael.. This is bit confusing for the beginnersI was under the impression once money has been paid off into loan (either in P&I loan or into Redraw), I have loss tax deductibility on the amount forever. But now I understand that by refinancing and topping up loan to 80% or 90% LVR (whatever required), we can create new loan account to use for investment purpose. These funds will be combination of re-borrowing paid amount and increase in equity over a period of time. I hope I am correct with my understanding now.
I will setup this loan account with 25K now and as you suggested put this 25K in the offset for this future investment account and not in the PPOR offset.
Spot on buddy!
Most banks allow up to 3-5 split per security.
Regards
MichaelMick C | Shape Home Loans
http://www.shapehomeloans.com.au/
Email Me | Phone MeSame Banks. Better Rates. Served With a Passion.
Amsaini,
Are you saying you want to borrow an extra $25,000 and put it in an offset account?
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
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Terryw wrote:Amsaini,Are you saying you want to borrow an extra $25,000 and put it in an offset account?
Terry I will borrow $24K for the increase in valuation and $1K which I have paid into the loan in last 1 Yr. I will create a new account for all funds (25K) on top of my existing loan commitment. Will keep 25K in offset of this account thereby incuring no interest on it until I withdraw this for next PPOR purchase or I guess will need to pay off and reborrow if purchasing next IP.
What is the purpose. You cannot borrow for an increase in valuation. You also cannot refinance $1000 you paid into the loan last year – or youcan but the interest won't be deductible.
I think this is dangerous. You shouldn't borrow money and place it in a savings account as that can break the nexus between borrowing and investing. see Domjan's case.
It all sounds very messy.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
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Terryw wrote:What is the purpose. You cannot borrow for an increase in valuation. You also cannot refinance $1000 you paid into the loan last year – or youcan but the interest won't be deductible.I think this is dangerous. You shouldn't borrow money and place it in a savings account as that can break the nexus between borrowing and investing. see Domjan's case.
It all sounds very messy.
Terry, Isn’t this what everybody would do to plan for next IP purchase. Refinance, reborrow and setup separate loan account and use funds for IP purchase. I am creating separate home loan account and having funds in offset. Everybody has been suggesting to have offset account and IO structure, So where am I wrong?
Do you mean to say that at time of IP purchase, I would have to pay off this 25k loan from offset and then reborrow to fund IP purchase as we discussed in the other thread? So for interest to be deductible, borrowing has to be done at time of IP purchase to define purpose? If thats the case, I am fine with it. As i have no immidiate plans to buy IP, I have to park funds in offset.
I think we have discussed this several times haven't we?
If you borrow to invest that is ok. But you would be borrowing money to put into a savings account. You would later invest. This is not ideal because there is no direct connection to the borrowing and investing. You may get away with it though but technically the interest wouldn't be claimable, especially if you have other cash in the account as well as the borrowed funds.
It doesn't matter what everyone else does. you need to do things properly so that you can maintain deductibility.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
Can I clarify with an example?
I have PPOR valued at $250k with a loan of $170k.
I want to borrow another $30k – up to 80% – to use for investment.
So I should set up another loan secured against the PPOR with an offset against it (NOT the other loan)
Put the 30k in the offset while arranging the investment and then use it when ready.
The 30k loan would then be fully deductable and the ATO would not have an issue.Is that correct?
Hi Goneos
Ideally you should set up a LOC for the $30k and use the money from there directly for investment.
Borrowing and placing money into an offset would not be wise. I would advise not to do it that way.
If you do decide to use the offset method, then make sure you have no money in that account when you deposit the borrowed funds. If you do then you will be in a greater mess.
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
Terryw wrote:If you do decide to use the offset method, then make sure you have no money in that account when you deposit the borrowed funds. If you do then you will be in a greater mess.This is exactly what I am trying to do. Will keep funds in separate offset accounts so that funds for investment are not mixed with my personal funds in PPOR loan offset.
amsaini15 wrote:Terryw wrote:If you do decide to use the offset method, then make sure you have no money in that account when you deposit the borrowed funds. If you do then you will be in a greater mess.This is exactly what I am trying to do. Will keep funds in separate offset accounts so that funds for investment are not mixed with my personal funds in PPOR loan offset.
still not ideal. but better than the other way.
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
I understand what you mean. Ideally, To pay down this loan with offset, re-borrow at time of purchase to have connectivity between borrowing and investment if using offset method. Also keep offset funds separate from personal use offset attached to the PPOR loan in case not refinancing at time of IP purchase. Otherwise go for LOC.
I may be being too strict, but you never know. I have a friend who has been audited by the ATO and he had transferred money from his loan to his savings account, mixed with other money, and then invested it. They never picked it up or mentioned it so it wasn't a problem.
But better to be safe and sure.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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