consolidation of equity loan?

Another possible scenario but unsure if its the right thing to do. Pay out loan B and close it. Do equity release from PPOR now and have that sitting aside to be used for future IP/PPOR interstate if it comes down to that. I understand the interest accrued from the equity release is not tax deductible if used for a new PPOR.
Loan A interest is tax deductible once original PPOR becomes an IP. I would take out the balance in the offset and put it in a new offset against a new PPOR loan.

Irregardless of whether i close the loan or not, the tax deductible interest is only that of Loan A once it becomes an IP. If i leave loan B alone and not pay it down/off, the amount owing will just be transferred into my offset account against loan A so essentially there is no change with my interest? Or i have to pay loan B down/off because its purpose was for the sold IP?

I am getting myself all confused with too much analysis. Dont want to make the wrong move and set up future investments/mortgages wrong. Thanks again for everyone's input.

 

Loan A would only be deductible if it solely relates to the purchase of the PPOR.

If there was ever money redrawn from it it would be a mixed loan.

Interest on loan B won't be deductible if you drawn it down and park it in the offset on the PPOR>

 

Yes loan A is only for the current PPOR. It has an offset attached to it so i will withdraw all funds in the offset when we convert it to an IP to max tax deductibility.

I guess the question is would it be more straight forward to pay out and close loan B upon the sale of the IP and then do an equity release on the current PPOR? Rather than pay down loan B but leave it open??

We do have some time before the move so would want to have some sort of equity/line of credit set up so that we can act on the next purchase there should something suitable comes up.

 

Easier to pay it down and have access to redraw. But depends on bank and product.

 

Thanks Terry! Much appreciated!

 

This seems like double handling - closing one equity release and opening another? It makes more sense to just pay down the one you have and keep it ready for whatever comes next.

Which lender are you with? This will determine the best way to go about it and what's possible with your current product.

 

"Best thing to do would be to pay back loan B and then consider using it for debt recycling on the PPOR once it becomes an investment property."

Just a hypothetical in regards to debt recycling:

could i use the amount that has been repaid into loan B (account not closed) to pay the interest for loan A when i convert the PPOR into an investment property? Would the interest of the amount withdraw from loan B be tax deductible then? As well as interest of loan A? As both are used for investment purposes? Not sure if this is what you mean for debt recycling?

 

See my tax tip on capitalising interest.

Short answer is it could be deductible but the commissioner could deny the deduction if it is a scheme with the dominant purpose of a tax deduction.

 

Check with your accountant regarding the interest, but generally speaking property expenses that aren't interest, like rates, repairs etc can be used this way.