Hi all,
New to this forum so looking to get a little bit of advice. Basically after reading a lot about property investing I have decided to take the plunge. My wife and I have saved up a deposit for a home and we have just had our offer accepted on a property in Brisbane.
We are looking to put up a 10% deposit for the loan and add the LMI to the total. I am looking at going through a lender who offers an interest only option (up to 15yrs) with an offset account and the choice to lock in a potion of the loan for 1 year at a fixed rate of sub 5%.
The plan is to pay interest only with the major portion of our loan locked into the fixed rate for 1 year (after which reverts back to variable rate) with our remaining savings put into the offset account immediately and then continue to deposit our regular savings into this also. I understand that you can only offset against the variable portion of the loan and have taken this into account when splitting the loan.
Our plan is to then live in the house for 1 year as a PPOR (to qualify for the stamp duty concession on first home) and then move out and turn the property into an investment as I move around for work. At the same time we change the property from a PPOR to IP we would be taking out all of our savings we have deposited into the offset account and pay the full interest amount as a tax deductible expense.
While we are living in the property we plan on improving the kitchen and bathroom and then getting the property valued just prior to changing it over to an IP.
Can anyone see any problems with this plan of attack? I have researched many different options available and this one seems to be the most beneficial. I have also been told that when we change the property to an IP we are able to claim the LMI as a tax deduction? Is this the case even after having the loan established for 1 year?
Thanks in advance for your help.
Hi Nathan
Couple of immediate suggestions.
You could look at borrowing 100% and using a Term Deposit as collateral security and that could help or alternatively going 100% fixed and offset account at the same time.
You are correct that you need to occupy the property for 12 months in order to qualify for the concession rate something that a lot of first home buyers forget.
In regards to your LMI premium this is considered a borrowing expense and is deductible over 5 years or the term of the loan once the property is available for rent.
It is proportional so assume you settled July 1 2013 and the property became available for rent July 1 2014 you could claim 4 / 5th's of the total premium charged being 1/5th each year for the 4 years.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Hi Richard,
Thanks for your response. I would like a little more information on securing the loan against a term deposit option. What percentage of total loan would be required, ie is 10% sufficient and would this result in a higher LMI? Also when if ever would this money in the term deposit become accessible? Would the value of the property need to increase equal to or greater than the amount used to secure the loan?
Cheers
Nathan
Nathan, no in the main going to need 20% as LMI won't accept a TD as security.
The TD would be held as security so you wouldn't be able to use the funds during the period but of course when it was released 100% of the existing loan would be Tax deductible.
If this is not an option make sure you shop around as LMI premiums for FTB's do vary between the 2 insurers and from lender to lender.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Hi Nathan
Your plan of attack sounds pretty good – looks like you've done your research into correct structuring. My only comment is to leave enough of the loan variable so as you're not in a position where you have a surplus of funds that could be offsetting the loan sitting somewhere else.
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]
Instead of a TD another way with greater asset protection is to gift money to a discretionary trust. You can then borrow this money, interest free for 1 year and thereafter market rates. This will enable 105% borrowings. Trustee could even plance a second mortgage or a caveat :securing' an equitable mortgage.
Later as equity builds up with growth you could refinance this loan with a major lender and the trust could get its capital back. Terms of the trust could be drafted so that it can make itnerest free loans to beneficiaries.
Superior asset protection and something you could use over and over again. Can also assist with tax reduction strategies.
Make sure you get legal advice on this as many issues involved.
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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