Do you rent or are you paying down your PPOR?

Like Jess said, but also consider that the loans are also usually assessed as PI and over a term minus any IO period and at a 20% buffer.

Also investment loans are deductible so treated slightly different to non deductible debt.

 

I had a fully paid off PPOR (actually, it never had a mortgage to begin with). So I then took out a loan and used that to act as deposits to buy other properties. The loan is split into sub loans to avoid cross contamination and each of them is like a LOC. No need to guess

 

Its not the security that determines deductability but the "purpose of the funds" and in this case its all for investment purpose so therefore deductable debt.

If you are unsure if debt is deductable or not you need to ask "what is the purpose of the debt"?

So what DT said.

 

It is not just 'purpose' but the 'use' of the funds that determines deductibility.

Example
John buys a property for $500,000 using a $500,000 loan. It is a main residence.

But 6 months later John rents the property out. The interest on the $500,000 would now be deductible.

The purpose of the funds hasn't changed. They were used to buy a residence and it is the use of this residence that has changed. The loan was used to acquire a residence and this residence is now income producing.

 

Correct.

 

Thanks!

 

Purpose / use means the same in my mind but you are correct, again!

 

I think there are subtle differences.

The use test comes from FCT v Munro (1926) 38 CLR 153

and the purpose the funds are put to comes from Fletcher & Ors v. FC of T 91 ATC 4950; (1991) 22 ATR 613

I haven't dug too deeply to work out the differences (yet)

 

We have been renting the same house now for ten years. In that time we have built up a portfolio of six IPs and we are now in the position of buying our PPOR in the suburb that we currently rent in. But since we are paying peanuts for rent, we are tempted to buy a PPOR but rent it out and keep renting where we are. At least this gets us a property in the suburb we want to live (previously a financially unattainable dream) but we get better income by renting it out at a higher yield than the place we rent and then we can decide when we want to finally move into it. Though even if we make it a PPOR and move in, we won't be paying down the loan, but will have the loan as IO with an offset. The offset will be our cash buffer for IR rises etc and will be our little piggy bank for renovating or assisting in the purchase of more IPs in the future.

 

Whilst I know this to be true, what is the reason... surely +2% would be an ample buffer, 7.25% is double what some lenders OO rate would be.

 

I rent in Adelaide and am paying down my Sydney ppor by renting it out for more than the mortgage... 6 year rule is handy

 

@Cactus loan terms are over 30 years typically so lenders take a long term view and apply a statistical average im thinking.

 

Sure again I understand this and their risk adversity but, given one would also expect the banks security to increase significantly in this period too.

 

@Cactus Im thinking that it will loosen up a bit once APRA are satisfied and there happy to let the credit tap open up some more. Might be a little while yet though???

 

I would like to be able to afford to buy a PPoR but I can't at this stage. I don't even rent. I'm living in a shared house. I will reevaluate if I can afford to buy a PPoR in about 2 years.

 

Bought my dream PPOR only a couple of months ago so cant see myself moving any time in the foreseeable future!! Just putting $ in an offset account and trying to figure out what to do with it, whether to buy another IP or to diversify...

 

We are renting (Sydney) where it makes sense due to the low yield and we are making good money, whilst paying down our PPOR (regional NSW) via offset account which is rented at a much higher yield.

Plan is to move back into it before our 6 years is up, preferably without any debt.
When we decide to upgrade, carry our savings across to the next PPOR offset account and lease the first one again.

Works well as we have a large buffer for our investments, and if ever required we could sell the PPOR tax free to get out of trouble.

 

PPOR. I purchased it in the outer suburbs so the mortgage is cheaper than the rent I'd be paying.