Hello Everyone,
Thank you all for the wealth of info that can be had from this forum, especially the generosity of forumers who have always helped out. My question is about the best possible loan structure that can maximize tax deductibility for our situation. We are in the process of refinancing all our loans and we currently have the following all on 5.68% with NAB. We would like to buy a property for PPOR and turn our current one into an IP. We don't have enough for a deposit right now and hoping that we can free up equity to purchase a new PPOR.
PPOR current value of $450K ( soon to be IP) loan of 250K with offset facility and attached LOC 68K used for investment purposes in previous purchase of 2 IPs.
IP1 value is 350K owing 297K
IP2 alue is 420K owing 330K
We would like to purchase a property to move into, value is 445K.
My questions are the following:
1. Can I refinance current PPOR for 250K + 68K = 318K and claim deduction for this as both loans are now an investment?
2. If I refinance current PPOR to 85% LVR or 380K,, would this be deductible when it turns to IP? If not, would it be just the 318K originally owing?. I will be using the difference 380-318= 62K to purchase the new PPOR.
3. I plan to bring up the other 2 IPs to 90% LVR ( with LMI) to fund the short fall for my new PPOR purchase, thinking LMI will be deductible ( or am I mistaken ?)
4. I have an offset account with the current PPOR and around 10 K redraw available. I'd like to redraw this and put it the offset to max the deductibility once it becomes an IP, is this possible?
Thanks in advance for all your thoughts re the above.
ruffa37 wrote:Hello Everyone,Thank you all for the wealth of info that can be had from this forum, especially the generosity of forumers who have always helped out. My question is about the best possible loan structure that can maximize tax deductibility for our situation. We are in the process of refinancing all our loans and we currently have the following all on 5.68% with NAB. We would like to buy a property for PPOR and turn our current one into an IP. We don't have enough for a deposit right now and hoping that we can free up equity to purchase a new PPOR.
PPOR current value of $450K ( soon to be IP) loan of 250K with offset facility and attached LOC 68K used for investment purposes in previous purchase of 2 IPs.
IP1 value is 350K owing 297K
IP2 alue is 420K owing 330K
We would like to purchase a property to move into, value is 445K.
My questions are the following:
1. Can I refinance current PPOR for 250K + 68K = 318K and claim deduction for this as both loans are now an investment?
2. If I refinance current PPOR to 85% LVR or 380K,, would this be deductible when it turns to IP? If not, would it be just the 318K originally owing?. I will be using the difference 380-318= 62K to purchase the new PPOR.
3. I plan to bring up the other 2 IPs to 90% LVR ( with LMI) to fund the short fall for my new PPOR purchase, thinking LMI will be deductible ( or am I mistaken ?)
4. I have an offset account with the current PPOR and around 10 K redraw available. I'd like to redraw this and put it the offset to max the deductibility once it becomes an IP, is this possible?
Thanks in advance for all your thoughts re the above.
Hello
I'm not an accountant and would always recommend you seek professional advice where necessary. My thoughts are:
1. If they are both IP related that should be fine.
2. No, the $250k would be – and the $68k you used for the other IP would be. Any increased borrowings would only be deductible if the purpose was investment related.
3. Ask an accountant about this. Definitely make sure that you create new loans for these equity releases though so you can distinguish your deductible and non-deductible debts.
4. Redraw is treated as new borrowings so deductibility is again determined by purpose.
Hope that helps.
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]
Once the property becomes an IP – the loan amount (whatever it is at the time) will be tax deductible. The $68k should already be tax deductible since the purpose of the loan was to fund the IP purchases.
You need about $105k to avoid LMI on the new PPOR and this may be suitable since the LMI is not tax deductible so I would take one or more of the other loans to LMI (this would be not tax deductible) and ensure that they are separate facilities. Don't take the new PPOR to an LVR of over 80% as the LMI would be higher than the other loan amounts.
You currently have $42k in equity at an 80% lend against the existing PPOR and another $6k in equity at an 80% lend against IP 2 so thats $48k in total without paying LMI.
Regards
Shahin
TheFinanceShop | Elite Property Finance
http://www.elitepropertyfinance.com
Email Me | Phone MeResidential and Commercial Brokerage
Thanks a lot Shahin. I am looking at Citibank at the moment for their 85% LVR with no LMI for the new PPOR and possibly Homeside for the 2 IPs and the current PPOR soon to be IP. Any suggestions for lenders? Thanks again.
Thanks also Jamie. Definitely a starting point of my discussion with my accountant before I proceed with this.
That's sound like a good plan assuming you meet the criteria for the 85% LMI waiver. Citibank have conservative servicing but they are an ok lender – certainly in this scenario as that LMI portion will save you quite a bit.
No issues with Homeside either – they are a good lender. Why are you refinancing to Homeside? Are you chasing interest rates? Who is the current lender for the IP's?
Regards
Shahin
TheFinanceShop | Elite Property Finance
http://www.elitepropertyfinance.com
Email Me | Phone MeResidential and Commercial Brokerage
ruffa37 wrote:Thanks a lot Shahin. I am looking at Citibank at the moment for their 85% LVR with no LMI for the new PPOR and possibly Homeside for the 2 IPs and the current PPOR soon to be IP. Any suggestions for lenders? Thanks again.Did you pay LMI on these loans previously?
If so, an external refi to another lender will trigger another LMI premium which can be costly.
While I'm not a huge fan of NAB – is there any particular reason why you're moving all of your loans away?
If the aggregate borrowings is under $1m and the loans aren't crossed, I can't see there being a huge problem with sticking with the one lender – you should also be entitled to a decent discount on rate across the loans and only subject to the one annual fee.
Citibank have terrible servicing – I'm not sure what your income position is like but this is something that needs to be considered.
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]
All loans are with NAB choice package at variable of 5.68 % with the discount. We went back to them, couple of weeks ago and would not lend without selling one of the properties. Refinancing at 4.99 % hopefully for positive gearing. IP#2 at 400 per week and current PPOR modest estimate of 430 per week. IP# 1 is renting at 355 per week. We don't have enough cash to fund new purchase ( which we think is a good buy, land value of 139K + 389K build cost 4 years ago and now for sale urgently at 450 K) . I am on 90K income and hubby on 70K income per year. We have car loans but values of the cars is more than the loans. Thanks again for any insights.
Checking the loan documents now, we paid LMI on IP 2 purchased in 2010. Thanks again.
… and yes all loans are standalone. Thanks again.
If I were you I would be ordering upfront valuations on each of the properties ASAP to get an idea of what they are worth and thus equity plus its free.
Regards
Shahin
TheFinanceShop | Elite Property Finance
http://www.elitepropertyfinance.com
Email Me | Phone MeResidential and Commercial Brokerage
Free valuations ordered this week came up at the following.
PPOR- 450K
IP1- 350K
IP 2- 420K
Perfect. The no LMI 85% LVR with Citi is a certainly a good option if again you meet the crtieria.
Regards
Shahin
TheFinanceShop | Elite Property Finance
http://www.elitepropertyfinance.com
Email Me | Phone MeResidential and Commercial Brokerage
ruffa37 wrote:All loans are with NAB choice package at variable of 5.68 % with the discount. We went back to them, couple of weeks ago and would not lend without selling one of the properties. Refinancing at 4.99 % hopefully for positive gearing. IP#2 at 400 per week and current PPOR modest estimate of 430 per week. IP# 1 is renting at 355 per week. We don't have enough cash to fund new purchase ( which we think is a good buy, land value of 139K + 389K build cost 4 years ago and now for sale urgently at 450 K) . I am on 90K income and hubby on 70K income per year. We have car loans but values of the cars is more than the loans. Thanks again for any insights.Hi again
If it doesn't service with NAB I can't see how it would service with Citi.
I'd also be reluctant to pay LMI again on the IP that incurred it. An increase with NAB (if possible) would result in a small increase to the LMI premium rather than a whole new one (which will be costly).
Are you using a broker to structure all of this?
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]
Few updates:
Our offer of $445K got accepted. I went back to NAB and clarified the loan situation. We don't have to sell a property and we are able to service loan up to $570K. NAB ordered a valuation of current PPOR and came back at 430K ( driveby ). Another lender did a valuation today and went in, came back at 470K. With the top up for the 2 IPs with NAB and 80% LVR for refi of PPOR and for new purchase, there is enough to cover all purchase costs.
In terms of tax deductibility, what are your thoughts on the following:
We would like to rent out new purchase for 6 months ( a possible tenant already ) then turn to PPOR once we have more money saved for renos before we move in and continue living in current PPOR pay minimum P+I and take out redraw available ( 10 K to do kitchen Reno, hopefully help with depreciable value )
My questions are:
1. Would the refi amount of 80% of 470 K for the PPOR ( 376K ) now fully deductible by the time PPOR turns to IP in 6 months time as the excess of 56K from the original amount of ( 250K +68K) has now been used to purchase an IP originally but will become a PPOR?
2. We also have about 27K in offset account attached to current PPOR. We plan to move this to another account once PPOR turns to IP. Will this affect deductibility in any way?
Thanks again for any help from forumers out there!
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