ok so here is our situation. we need to change our current loan for our pricipal place of resident from PI with redraw to IO and offset account. went and seen our broker to let him know what was going to happen and gave me a few ideas. anyway our current loan is with ING and to change to IO with offset will cost us the same amount as a refinance as they wont simply let us change to IO with offset is this correct? He was suggesting suncorp are pretty good at the moment as there rate is lower than ING but they have a $25 monthly fee which is $300 a year. Not sure if suncorp is any good. He was also suggesting that when we refinace we should take our loan back to 80% LVR. our current situation is we owe 325K and was Last valued at 430K. if we went to 80% LVR this would give us an extra 20K there abouts that we can use to put towards our next PPOR.
now here comes something i am not to sure will be okay or not. if we did take our LVR back to 80% this would incrase how much we owe so giving us a bigger principal to claim against tax.
note we will be still living in our PPOR while this loan is changed over
i know our broker will get a kick back from the lender for the life of the loan for writing the loan but does he get more of a kick back for getting us to refinance to a bigger loan.
any thoughts would be great
Firstly welcome to the forum and hope you enjoy your time with us.
Dont want to knock your current Broker but sounds to me like he has no idea on how to structure the loan to maximise your Tax deductions. it is not matter of merely refinancing and increasing the loan amount.
Now as far as lenders are concerned the service levels with Suncorp are absolutely terrible so on go this route if you are not in any sense of a hurry. Not sure what ING product you are on but there is no reason why you cant do a product switch. You can certainly have an interest only with 100% offset account (Assuming the loan is thru a mortgage manager who may have limited product chocie) however your Broker will not earn as much if he keeps you with the current lender.
Certainly many Brokers like to encourage regular refinancing to keep the level of remuneration up.
My philosphy is dont refinance for refinancing sake and only do so if their is a clear benefit for the client.
I guess each Broker to their own.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
ledgend80 wrote:i know our broker will get a kick back from the lender for the life of the loan for writing the loan but does he get more of a kick back for getting us to refinance to a bigger loan.Yeah he does – but $20k wouldn't be much more, so I doubt (and sincerely hope) that is the reason behind the suggestion.
I agree with Richard – only consider an external refi if the numbers work out and/or it's required to meet your objectives.
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
ok so i just went and check what our loan is and it is an ING MORTAGAE SIMPLIFIER. our broker was saying that if we wanted to change from this current loan to the ING IO with offset account it would cost us the same as refinancing is this true? and does ING only have 1 IO account with offset feature? I know if we wanted to change our current loan from PI to IO it would cost us $250 (this was the case last time we inquired) but if we want to change to there IO with offset it will cost us as much as refinancing is this correct?
No definately not s there will not be any discharge or registration of mortgage for starters.
ING have an Orange product which is their offset package and depending on the loan amount will have much the same interest rate as the Mortgage SImplifier. Your Broker wrong is misinformed.
In saying all of this i am slightly lost as to why your Broker would suggest IO with 100% offset when you are renting this property out and intending to move into a new PPOR. Wouldn't the Offset A/c be better on the non deductible new debt.
Secondly if you only raise 20K towards your PPOR and are not putting in any cash yourself then the loans would have to be cross collateralised so as i mentioned initially i am not convinced your Broker has any idea about loan structure.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
i thought this is what i was meant to do. so when changing your PPOR to IP i thought I was meant to set it up as interest only with an offset account. is this not the case. I may have not made myself 100% clear as we will not be buying another PPOR straight away could be 6 months down the track. So what you are saying is that to change from the simplifier to the orange loan should not cost much at all. How much should we expect that to cost? From memory he did say that the orange loan was 0.1% higher interest rate than the simplifier loan is this also correct?
thanks for the comments
He has the advantedge of the hard data such as loan amount etc etc so very difficult for us to comment on specifics.
I am still not sure why you would want to switch the loan product when you could merely go interest only with the mortgage simplifier. as there is no account keeping fees.
Do an equity loan with redraw, place the new PPOR funds in there and stick the offset account on the new property.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
what data would you like to see i can pm you if you would like to see what ou can suggest
ledgend80 wrote:i thought this is what i was meant to do. so when changing your PPOR to IP i thought I was meant to set it up as interest only with an offset account. is this not the case. I may have not made myself 100% clear as we will not be buying another PPOR straight away could be 6 months down the track.That's all good then. Use the offset account for the next 6 months until you purchase your PPOR. Once you purchase your PPOR move all of the funds from the IP offset onto the PPOR (which can also be an offset account).
No need to switch – just convert to IO.
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
Broker would likely get a new upfront commission from the new lender. This could be the motivation.
Watch out for withdrawing money from the loan as if it goes towards the new PPOR then the interest won't be deductible and you will have mixed purpose loan.
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:Broker would likely get a new upfront commission from the new lender. This could be the motivation.Watch out for withdrawing money from the loan as if it goes towards the new PPOR then the interest won't be deductible and you will have mixed purpose loan.
I thought this is why you have an offset account attached to the IO loan. If i have all my spare funds in the offset account so that you could take money out of the offset account and say put towards the new PPOR. therefor not cross contaminating the loans
is this correct or not
Correct, but where is your money now?
If you are withdrawing from a loan this will be new borrowings and the interest on this portion will only be deductible if it is used for investment purposes.
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
so at the moment we have about 10k in redraw and owe 280K on the house and 35K on another split which is IO so if we change the house loan to interest only with an offset account and move the 10K from redraw to another savings account before the new loan is setup while we are still living in our PPOR and then rent our house out in january would this be classed as new borrowings
Yes.
Taking money from a loan, including a redraw , is new borrowings.
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
yes i understand that but does that still applly if i change the loan to IO and change the redraw account to an offset account and remove the redraw money before setting up the new loan
removing from a loan = withdrawing = new borrowings
So, yes. It doesn't matter when you withdraw it, it is the purpose that determines 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
so what you are saying is that we need to refinance our loan to create a new loan so this does not affect any borrowings and cross contaminate the loan
I don't understand that sorry.
There is no way to make that $10k deductible.
If your loan is $325,000 (including $10,000 redraw which is from extra payments) and you are moving out and into a new place, then the interest on the $320,000 should be deductuble (providing you had never redrawn from this loan).
You can then set up a new separate loan for say $20,000. This $20,000 could be used towards the new PPOR, but the interest would not be deductible because it is private purpose borrowings.
You could then get a separate loan for the PPOR with another lender or same lender. If you have other cash and/or use the $20,000 loan then you would not have to cross collateralise the loans.
(PS. this is why you should never pay down a loan and why an IO with offset can work out better).
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 am confused time to talk to the accountant again
Lets keep the numbers simple.
eg. $1.000,000 property (proeprty 1). $500,000 loan (loan 1). PPOR.
You inherit $100,000 and put it into the loan, thinking, I will save interest and take it out later for my new PPOR.
Your loan drops to $400,000.
A year later you decide to go and buy a new PPOR and will rent the old one.
You want to use the $100,000 as deposit for the new one. So take it out of the loan.The new balance on loan 1 is $500,000
Only $400,000 of loan 1 relates to the purchase of property 1. So the interest on the $400,000 would be deductible when this property is rented out.
The $100,000 redrawn is new borrowings and the purpose it was borrowed for is the new PPOR. Therefore it is a private expense and the interest will not be deductible.
If you have mixed these in one big loan of $500,000 then, generally, only 4/5 of the interest will be deductible.
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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