Best way to split new mortgage

I have my appointment with the bank tomorrow to sign my new mortgage papers, do was hoping to get some advice on the best way to 'structure' my loan set up.

I am refinancing with a new lender and borrowing the extra equity in my PPOR to build a granny flat on my property. Granny flat will be rented out at $350 per week

New mortgage will be $400k to pay PPOR mortgage and $120k to build granny flat. There is an offset account as part of the loan product. I also still have $30k of my own money now sitting in my everyday bank account.

What would be the best way for me to split the loan and hopefully maximise some tax deductions? I don't have an accountant yet but am in the look out for one.

 

Loan structure is something that you should decide when you're applying for the loan, not when you're signing the loan offer documents.

If the existing set-up is a single loan of $520k then don't sign the paperwork otherwise you'll potentially contaminate the deductibility of the granny flat portion of the loan. Get them to restructure the loan properly and have new paperwork that reflects the structure you need.

There's some assumptions in this, but it sounds like the structure you're looking for is simply one account of $400k and another for $120k. Keep the money for the granny flat separate from the original PPOR debt.

Have an offset account against the the $400k loan and put the $30k savings into that.

As stated, this is based on some assumptions, you probably want to get more specific advice.

 

Thanks Peter, talking to my broker today it is apparently no problem to set up the two seperate loan accounts but I will check it with them first.

Given what I had been reading in here I knew there were issues with not having a clear seperation of the loan hence my post.

I will eventually rent out both my PPOR and granny flat but that is 12 months away.

I really need to find a good accountant.

 

See all my tax tips. I have about 50 on loan structuring. I would put off signing until you get advice.

 

Depends too on what you / bank do with the GF $. In an offset you may have a problem since it has no deductible purpose yet it reduces deductible interest for the main home. Can you have your solicitor hold it in their trust account until you get it sorted ?

Personally I would ask bank if the GF $ can be an undrawn facility that you draw on later.

 

I find it worrying that your broker was going to lump it into one loan of 520k.
Separating them only when you called him/her.
I assume you told the broker that the extra 120k was for a GF that would be producing income. Therefore, would need a split to avoid contamination. Regardless of the fact that in 12 months you will rent both GF and house out.

 

I think she intends to build it right away Paul. So will need the funds asap. No need to put GF money in offset. Shouldn't be a problem if she is using it now is there?

 

i have just split a loan of mine (400K in offset into 2 splits a)200K - loan 1 in withdraw and b)200K - loan 2 in offset) - just needed to sign some papers and mailed it off and it got actioned about 3 days. Cost me $95 by bankwest. they didn't notify me when it occured and i sort of lost 3-4 days of interest which was about $100+ but they refunded it back to me.

 

Thanks all for your guidance, working on getting a split loan with the offset attached to the PPOR loan. Also may have found a good accountant so hopefully I can get this ball moving in the right direction.

I am building straight away and have not made a decision who to go with just yet. Some of the granny flat companies seem like they just throw it together like an ikea flat pack, take tour $120k and off they go, so I'm talking to a couple of private builders just to get a good comparison.

 

Just to add onto this post.

If 25% of loan is land under granny flat vs 75% of loan is land under main residence/PPOR, would splitting the loan into 25/75 portions be appropriate? And, would it be kosher with the ATO to move all the offset balance into the main residence split/portion (in terms of tax avoidance scheme)?

 

This will depend on the situation. The granny flat may occupy 25% of the land but does 25% of the loan relate to the construction and land component?

 

no construction...Was there on purchase...

 

In that case it might be a reasonable basis to apportion. Check with your tax advisor.

 

Yes some I have seen make Ikea look real high quality. Some look like high cost chook sheds and others look like a free standing dwelling. .

 

Thanks Terry. Will do.