Excess funds investment loan

Hi all ,

I have recently bought my first investment property .

Bank has set up an equity release loan (say loan A) $100,000 that covers the 20% deposit plus costs (stamp duty, solicitor fees, etc) against my current home.

I borrowed the remaining 80% (say loan B)against the investment property.

Question is - i have only used 80 from loan A for buying the property.The remaining 20k is available as cash back.

I have the following options

1. Is it better idea to request the lender to create a new loan (loan C) for 20k. I want to use this 20k plus any new borrowed funds in the future for buying another property

2.Split off Loan A for 80k thus creating a new loan and reduce loan A down to $20k .

Please suggest which of the above options is a good one from tax purposes etc.

Thanks

 

You could just split off the remaining $20k - that's likely the easiest thing to do and will keep everything separate.

 

Thanks Jess

 

Depends on lender.

If you can split over the phone etc then yes split. If that's a full application with your lender I would suggest you park the funds in offset (or redraw if no other alternative but don't redraw for non investment purposes or you will end up mixing the purpose of the whole loan).

 

You could use the excess to pay for costs associated with your IP. Check with your accountant first as always.

 

What do you mean by 'cash back'?

 

I mean 20k unused funds out of 100k sitting in the loan for redraw.

Thanks

 

what would you want to use that $20k for?

 

@Terry_w - I want a separate loan to be set up so I can use these funds and some of my savings to buy a second investment property.

Thanks

 

It was be better to split the loan in that case. But as $20k is a low amount for a loan you may consider just keeping as is and apportioning the Interest.