We got suggested to set up our loan structure like this.
My partner and I just don’t understand why, the structure somehow is good for tax (we are both new to investment and don’t know much about tax deduction).
Thanks very much in advance for reading this and would be great that you could explain to me if you know the reason.
We are both 33 years old with two young children. my partner earns $70,000/year with his full-time job and I have two casual jobs earning around $30,000/year.
We have a house to live, it worth about $700,000, and has $290,000 mortgage. We now want to buy our first investment property around $400,000.
We also have $150,000 offset account for $290,000 home loan. We may also want to change the current home to an investment property after 10 years.
We got the suggestion as bellows:
– For our existing house: set up two loans, one loan is $140,000 with an offset account, it is interest only; the other loan is equity loan $300,000 with an offset account, it is also interest only,this offset should have $300,000 in it, so we basic don’t need to pay interest. We don’t know where this number $300,000 comes from. Please help explain if you can:)– For the investment property: using the equity of our existing house (about $100,000) to pay the deposit of our investment property and have another interest only loan ($300,000) for the investment property.
We don’t understand with the equity loan, why we need borrow $300,000 even we just need $100,000 for the deposit of the investment property. We understand the repayment for investment property should come from the offset of equity loan but do we need $300,000 that much?
And with this loan structure, which account should our salaries go?
We also got suggested by stracturing loans in this way we can avoid CROSS COLLATERALIZATION, even we do the home loan and investment loan with the same bank. We also can get good discount from the bank if we do with the same bank, maybe CBA as they accept casual jobs in a short period.
We are so confused, please help us!
I am sorry that there are many figures above and thanks so much for your time!
Hi, I can’t help you with the figures unfortunately as I am not licensed to give any form of financial advise – but who suggested this loan structure? You can either go back to this person / organisation and ask for clearer explanation or seek professional help else where. Don’t get pressured into anything you do not understand or feel comfortable with.
You also have the option to seek another opinion, someone you are more comfortable with and who is willing to take the time to explain everything to you.
I am sorry that you got advise that is confusing you – that shouldn’t happen. Do ask questions at any stage, it is your right.
Let us know if you get this sorted. Good luck.I am a tax lawyer and broker and licenced to advise on credit, tax and law and my advice is not to do it like this. They are suggesting you borrow $300,000 and park it in the offset account and later use it to invest. This is where the $300,000 comes from.
The problems with this are
1. You are borrowing now yet detouring and not investing directly
2. You could easily polute the borrowed money and look deductibility of the full interest – and create a mixed purpose loan.A better way to structure things would be to use the IO loan, the $300,000 like a LOC. You can borrow and deposit into the offset and then deposit back into the loan, minus say $200 so the loan doesn’t close down. Then when you find a new property to buy you can pay the 10% straight from this loan account, without any detours, and then you can be sure 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
and, even though you may just need $100k now it may still be wise to borrow $300,000 as it will not cost you any extra monney in interest and you will have the facility there if you need it. These days it is getting increasingly difficult to borrow like this so get it while you can.
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
Thanks very much for both of your replies!
Terry, with the problem 2 that you mentioned, how can I pollute the borrowed money and create a mixed purpose loan by the loan structure that I got suggested? And why can your loan structure avoid this happen?
I really appreciate you have read all the figures and provide me a solution, I am sorry that I am just too new to understand this straight away.
If you accidently used some of the money in the offset for personal items then the loan used to fund the offset would be mixed = part borrowed for investment and part for the private expenses. Easy to do as after a while you will forget what the offset account is in fact borrowed money. There is also a weakening of the nexus between borrowing and investing. You may borrowi n Spe 2015, but not use the money until Dec 2015 – or 2017 even.
With my method you borrow directly when needed
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
You must be logged in to reply to this topic. If you don't have an account, you can register here.
