I have 2 IPs all with 80% loan. Any equity loan I draw from these IPs for my PPOR will not be tax deductable. Hence, it seems always a good idea to have 100% loan (if you can) for purchasing IPs to max tax deductibility and use funds for PPOR.
The only to overcome this case I can see is to setup a debt recycling structure on the PPOR. Am I on the right track? However I do not see this is as effective as using 100% loan as debt recycling takes time to build up. Hence paying LMI seems much worthy from a tax point of view.
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…..
Yes, you are basically stuck as the loan has been made to purchase the property already. What you could have done is to use 104% in borrowings to keep the cash for the PPOR loan.
A way to increase borrowings is to sell between spouses – no stamp duty in some states such as VIC.
Hi Aque,
It would be helpful to understand a bit more of your situation before we attempt to show you “another way”. Would you add more info re these questions?
Is buying a PPOR your next priority, or are you talking of paying down the debt on an existing PPOR?
PS Tell us more about the title – “Contaminated deposit” – how is this so? I hope you are not cross-colled with your PPOR…..
See, while we are not sure just what you are trying to achieve, our ideas can only be general in nature. Help us to help you by spelling out just what your situation is right now, and what you wish to achieve.
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).