Change of loan purpose during fixed rate period

Discussion in 'Loans & Mortgage Brokers' started by Rex, 1st Apr, 2019.

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  1. Rex

    Rex Well-Known Member

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    Can anybody advise what generally happens when you change loan purpose (say, form owner occ to investment) during a fixed rate period? Do you move on to the fixed the rate that was applicable at the commencement of the fixed rate period for the new loan purpose, or is there some sort of other (potentially expensive) calculation employed?

    I'm considering fixing for 3 years on a PPoR, but there is the chance we may turn it into an IP and have to change to investment loan purpose during that time. Lender is currently Bankwest, but wouild be interested to know if others do things differently - couldn't find any relevant info online for any of the banks. TIA
     
  2. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    i think once u are on a fixed rate you are on a fixed rate

    ta
    rolf
     
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  3. Rex

    Rex Well-Known Member

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    Thanks Rolf, so wouldn't think there would be any repercussion or action taken from the lender should they be notified or find out that a loan purpose has changed from OO to INV during the fixed rate period? Interesting.
     
  4. Rex

    Rex Well-Known Member

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    Digging up this thread on a related topic - perhaps @Rolf Latham or another expert can kindly advise. Does the purpose on paper of an existing loan (OO vs investment) generally affect the way that other lenders consider the deductibility of interest for serviceability when applying for another loan?

    E.g. Property 1 is initially a PPoR and has a fixed rate OO loan with Bank 1. You turn Property 1 into an IP within the fixed rate period and the loan remains OO purpose as far as Bank 1 is concerned. Interest on the Property 1 loan is however tax deductible, fully offsetting its rental income. Let's say neutrally geared, for arguments sake.

    You then want to purchase Property 2 with a loan from Bank 2 (keeping the Property 1 loan & rate with Bank 1). Will Bank 2 have a problem with the fact that Property 1 is an IP despite the Bank 1 loan associated with it being an OO loan on paper? Specifically, when calculating serviceability, will Bank 2 consider the interest from the Bank 1 loan to be deductible, or at least consider the Property 1 rental income to be untaxed? Or must the Bank 1 loan be changed to an investment-purpose loan to allow interest deductibility / prevent tax being applied to rental income in servicing calcs?
     
  5. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Yes it does.
    The new lender should be advised if the existing loan interest is deductible
     
  6. Peter_Tersteeg

    Peter_Tersteeg Mortgage Broker Business Member

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    I've never experienced a lender denying negative gearing add-backs in their calculators because the existing loan is classified as owner occupier.

    The label and rate that a lender applies to a loan has no effect on the actual deductibility of that loan.
     
  7. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    Just a tangent

    CBA's system auto limits CBA SVR Home loans from gearing for future applications, and some lenders are even so silly to not allow neg gearing secured to PPOR regardless ........... less of that now but actual ATO deductability sometimes dunna matter - vacant land to be built on for investment as as a primary example.

    ta
    rolf
     
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  8. Rex

    Rex Well-Known Member

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    Thanks all for the prompt responses.