Deposit for loan

Hi Everyone,

It is getting close to the time when I will be able to borrow for an ip, I was just wondering if I can just use equity from my ppor to fund the whole purchase or do I need to add savings to it?

If savings is needed what would be a minimum that the banks would look for? Is there an actual figure?

 

If you have enough equity for a 20% deposit, stamps and other costs, then there is no need to use savings. You just need to meet serviceability requirements for both loans (PPOR equity pull and 80% LVR loan for IP).

 

Ok thanks Alan, we should be right then.

 

Don't use any savings as you will be throwing tax deductions away.

 

Thanks terry. Care to elaborate on that. I don't quite understand it.

 

If you borrow 105% of the new investment value, than you should be able to claim interest deductions on the entire 105%.

If you use cash for 20-25% of it, than you can claim interest deductions on 80% of the property value as you'll have less investment debt.

To borrow 105%, take out a separate split loan against one of your properties for 20-25% of the value of the new property your looking to purchase. Use these funds as your deposit and seek out the remaining 80% via another separate loan (so you avoid x-coll and each loan is secured by one property).

Cheers,
Redom

 

As Redom said.
Then apply the savings you have against your PPR loan account - offset. So you reduce your non deductible debt.

By using this method you have the same total amount of funds applied across your PPR and IP, just that the mix of deductible and non deductible is maximised!

 

Brian see this thread, written especially for you
https://propertychat.com.au/community/threads/tax-tip-60-never-use-cash-to-invest.4883/

 

Thanks terry, that makes sense now. I think I should start reading more of your tax tips. Thanks for the advice.

 

Can you still get 105% if its not ur 1st IP purchase?

 

Yes you can either
1 - using one of your existing properties as security/drawing equity out.

2- have a guarantor security to use.

Subject to valuation.

 

One question on this: with the 2nd split loan (used for ip deposit) is it secured against the ppor or ip1 or both in this scenario?

 

It should only be secured against one property, probably the main residence

 

Tax Tip 61: How to borrow 105% on your first purchase Tax Tip 61: How to borrow 105% on your first purchase

 

So say your plan was ever only to buy one IP at 500k and you had 120k deposit (20%+costs). In this scenario you would pay cash deposit right as if your total borrowing for IP is say 400k instead of 520k then overall you are paying less interest regardless of the tax benefits? Also presuming ppor is fully paid off.

 

If the main residence is fully paid off, why not borrow against it for the deposit?
You can then use your cash to fully offset this portion of the loan.
That way you have access to the cash
the access is tax effective,
you could potentially save interest too
you can have greater estate planning control
you can improve asset protection
It allows for future strategies to be implemented too.

But you could just pay cash and borrow 80%

 

You can then use your cash to fully offset this portion of the loan.

Ok got it now! Makes sense!