Contaminated deposit for 80% loan

Hi Aque,

Any equity loan I draw from these IPs for my PPOR will be tax deductable.

As I understand it, such a withdrawal would not be deductable. The purpose of the loan determines deductability, not the asset which the loan is drawn against.

Your following comments indicate that you KNOW that, so I think your first (quoted) statement was simply missing the word “NOT”. I agree that having higher leverage against an IP makes sense in most cases.

Re your second paragraph, I’m not sure that debt recycling is the only way – but I agree it might have worked better by paying LMI when borrowing for an IP. As always your “numbers” need to be considered – each situation is different, based on your pay, any savings, your working situation, age, risk profile, goals, etc.

Is buying a PPOR your next priority, or are you talking of paying down the debt on an existing PPOR? Depending on the situation, perhaps a drawdown on the two existing IPs can provide deposit/costs on your third, thus increasing your income for “debt recycling” on your PPOR loan.

Lots of ways to cut it, and I’m sure some of our resident finance gurus will be able to add more, especially in a one-on-one with you where you share a lot more detail.

Benny

PS Tell us more about the title – “Contaminated deposit” – how is this so? I hope you are not cross-colled with your PPOR…..

• This reply was modified 10 years, 1 month ago by  Benny.

$100,000 property
$80,000 loan 1
$24,000 loan 2

Wait 2 years and then refinance loan 2 into loan 1. Free up $24,000 cash to use for the PPOR purchase.

—
IN 2 years the property may be worth $140,000. (maybe be a bit longer)
80% x $140,000 = $112,000 = enough equity

So you just increase loan 1 to $104,000 and use the $24,000 released to pay out the sister.

Hi Aque,

My goal is to buy a PPOR and aim at a strategy I can have all my saving in PPOR

I’d suggest you add the extra bit at the end that keeps your options open :-

My goal is to buy a PPOR and aim at a strategy I can have all my saving in an Offset Account against my PPOR loan….

See, though you might buy a PPOR now, you MIGHT, in later years, want to turn it into another IP. By using an Offset account, your savings offset the mortgage payments as you save. But, when you withdraw YOUR cash from the Offset account, the original loan is still in place (allowing you to claim the Interest on the full mortgage as a Tax deduction on what might be your new IP – your old PPOR).

Talk about this in depth with the right adviser, or read on here all about it. Be sure to know of this choice before buying your PPOR. One link that helps to answer a lot of early investing questions, including re Offset accounts, is this one :-
https://www.propertyinvesting.com/topic/4410491-the-big-picture-for-new-readers-especially/

Thanks for adding that extra information re your circumstances,

Benny