Deductibility of PPOR redraw for purchasing IP

You’ll need a spreadsheet to workout percentage of deductible vs non deductible, plus the portion of the 2 different IPs you plan to buy so the interest can be deduced for each IP. And then if you put money back into the redraw, more portioning. Having been through it myself, it’s a PITA. Best to just split the loan. Trust us on this.

 

OK, I just spoke to a lawyer who is also a mortgage broker, not you, and not a tax adviser.

This is what he is proposing, when I am about to buy my IP:
1. move my $1.5m redraw balance to the Bank A and create Loan 1, and close my loan with the original bank- Loan 1 is a PPOR loan, P+I
2. use my $1.5m balance as an equity guarantor to borrow 105% (100% + stamp duty) of the a new IP with Bank A, and create Loan 2- Loan 2 is an IP loan, IO, 105% deductible

Will this work? Am I missing anything here?

So the end products will be, 2 loans, Loan 1 and 2 with Bank A.

 

Is there a reason why he suggested you change banks?

 

Is there any reason why I should care about that issue?

He mentioned about:
1. the equity guarantor mechanic so able to borrow 105% technically
2. painless and one application, can achieve the goal I described to him i.e. clean loan (not tainted), painless, legal, max deductibility.

What am I missing?

 

Well you just mentioned in another thread you don’t want to provide all your financial statements to your MB.
You could do the exact same thing with your current lender without all the rigmarole.

 

He said this bank does not need to see all bank statements.

To clarify, I am happy to disclose my spending (Excel) format, pay slips, tax return, credit card statements, bank account balance, BUT NOT DETAILED BANK STATEMENTS.

I don't personally care which bank - the bank that doesn't give me PITA is the best

 

Ok. As long as you have offset accounts to each split, then you’re all good.

 

Interesting, why would you need an offset account for the IP loan?

If I have extra money, would it be better just to put it in the offset of the PPOR loan?

And just to confirm, this does not cross-collateralize right?

 

Whats an ‘equity guarantor mechanic’?

usually a 105% lvr loan just means you borrow 25% against one property and 80% again the other, and use the combined to buy.

 

Actually, you will need 3 loans.
This is how most do it.
Loan 1- PPOR.
Offset 1- load up on this account first.
Security- PPOR.

Loan 2- 20% deposit +stamps and legal
Offset 2- load up this account second
Security- PPOR

Loan 3- 80% IP (to avoid LMI)
Offset 3- load up last.
Security- IP.

No x-col this way. Make sure all loans are 30 years.
Offsets are good in case you max out your PPOR.
Best to not pay down your IP loans, that’s why offsets for these accounts are necessary.

 

What the!!

How do you move a redraw balance?
and what is a equity guarantor - is there another person involved with ownership?
Sounds like cross collateralisation

Was it legal advice or loan credit advice?

 

Lol... wtf man...

Btw, my wife is the one who spoke to this guy, I will ask this guy to write down the plan in an email, so it is very clear, and whether it is cross-collateralisation.

Keep y'all updated.

 

So if two loans only... very likely to be x-col?

 

So Loan 2 and 3 are both fully deductible? IP loans?

 

Yes

Yes.

 

Awesome

I will ask this guy to write it down clearly the plan.

 

No. Absolutely incorrect. Its the confidence that you are correct that is wrong