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Deposit paid: financing issue with redraw

Discussion in 'Property Finance' started by legallyblonde, 26th Oct, 2015.

  1. legallyblonde

    legallyblonde Well-Known Member

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    Exciting news! The vendor has accepted my offer.. So now I will have a portfolio!!!!

    I plan on paying a 12% deposit, 1%LMI and 5% closing costs...

    The purchase price is $315k... So I will need to cough up $56,700 to close the deal.

    The problem is I have agreed to pay a $10k deposit in the next week but the refinance of my existing loan (which includes a fully paid split of 50k which I can redraw on) does not settle until the 5th of November.

    I will need to use the 50k in redraw at settlement of IP2 to close the deal.

    I have the cash to pay the 10k available at hand, but if I use this 10k to pay the deposit.. I will need to spend the entire 50k on closing costs + higher deposit... To avoid splitting the split loan (aka loan contamination. But I do not want to pay 60k to settle a loan when I could pay $56,700... We are talking about tying up an extra $3,300... It isn't a huge amount but I was wondering if there is anyway of avoiding this?

    I believe I can recall reading earlier a tax tip which talked about borrowing funds from friend/family (in this case to pay the 10k) then using the entire 50k for deposit/closing costs then paying anything remaining to my friend/family (after the refinance when the loan is split)?

    If it all gets too tricky.. I can just pay the 60k, it isn't a big deal... But $3,300 could help me purchase that little bit sooner down the track.

    I have another issue but I shall post a separate topic for that ;) I will be sure to update you with more details once the settlement is complete.
     
  2. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    I'm not following why it's going to cost you more? At settlement, you can leave the extra $3300 in the new loans redraw, you're not going to need more money to actually settle. Then use that $3300 for any expenses arising from the new IP.

    Otherwise, you might be able to use a deposit bond for the $10k.
     
  3. legallyblonde

    legallyblonde Well-Known Member

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    My understanding is that if I use the 10k cash as a deposit.. Then redraw 46,700(of the 50k) that split is then contaminated because $3.3k being for IP 1.
     
  4. legallyblonde

    legallyblonde Well-Known Member

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    Now thinking about it... Perhaps that $3.3k isn't contaminated... Gawds I am getting a loan headache! If I can use that $3.3k to pay expenses for the next couple of months that would be fine (assuming it is not contaminated).
     
  5. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Sounds like you will be using $10k cash. No contamination issues but just missing out on some extra tax deductions, perhaps, by not borrowing it.
     
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  6. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    If you have a $50k loan split and use $46k of it for deposit/costs, and leave $4k in it, it's not contaminated.

    If you spend the $4k on cake and shoes, it's then contaminated.

    If you spend the $4k on rates and maintenance on the same IP, it's not contaminated.

    :)
     
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  7. Jamie Moore

    Jamie Moore MORTGAGE BROKER - AUSTRALIA WIDE Business Member

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    Look at using a short term deposit bond in leui of the cash. Might cost a bit upfront - but the ongoing deductions might make up for it.
     
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  8. legallyblonde

    legallyblonde Well-Known Member

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    Thank you for the feedback guys! With no contamination it isn't much of an issue.. Since the cash was going to sit in the offset account anyway so ongoing deductions aren't going to change... I have no bad debt or PPOR debt to worry about.
     
  9. legallyblonde

    legallyblonde Well-Known Member

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    The good news is... I don't need to do anything tricky.... I am happy just to pay holding costs out of the redraw to empty it in the near future.