Deductibility of interest - IP loan secured by IP and PPOR

Follow on question on structuring IP loans for deductibility.

I have a PPOR loan with Bank A and $500k outstanding - value $1 mill- , with $499.9k in redraw + $100k cash in other bank in wifes name earning interest. House and loan in my name.

I have signed contract to buy IP for $1 mill. Have paid $50k deposit from wifes cash. Not selling PPOR.

I have approached Bank B to refinance:
- $500k loan secured against PPOR P&I @ 3.75%
- $500k loan secured against IP @4% to pay balance of IP price + SDuty

As I have reasonable free cash flow at the moment I intend building up offset account against IP loan to minimise interest costs at least until the property is tax neutral. My assumption is that all interest is deductible as there is no mixing.

Any perceived issues or suggestions for better structure?

 

Also i am not concerned about PPOR being redraw which i know means i cannot use this house as IP for interest deductibility. In 5 years time i will sell current PPOR, pay off all loans and live in IP and semi retire.

 

So to be clear - my current PPOR loan is $500k and 99.99% in redraw to effectively zero interest cost. Have not cleared the loan/mortgage as I want to take advantage of the lower ppor rates for investment.

 

Do you mean the balance on your loan is $100 but you can redraw $499,900?
If so you could borrow to buy the new property like you said.

Just watch out for cash taking detours on borrowing and contaminating the loan.

Did the wife lend you the $50k?

The family probably would have been better off if you bought this one in your wife's name and started building up large cash reserves in the offset account on the loan portion with the highest rate. But as you are going to sell the current main residence this may not be a long term issue.

Why not try to increase your loan secured against the main residence - at the lower interest rates.
And consider splitting the loan into multiple splits now if you plan on investing further like:
Tax Tip 13: Simple Loan Structuring Strategy Tax Tip 13: Simple Loan Structuring Strategy

 

Thanks for the replies.

My main concern is to avoid the contamination issue as deductibility is central to my strategy. This is partly why I will refinance - these will be 2 new loans. What do I need to look out for to avoid contamination?

Also increasing the loan on the PPOR sounds good however my understanding is that banks generally need a purpose and destination for the increase, and investment is not normally acceptable. Any suggestions?

Thanks