Help needed! Buy IP and move in. Loan rates

Hello everyone. Difficult situation here I need your help. We have just bought a home where we are living in (paid in full, $7000 approx stamp duties reduction as it s our residence). We also have a big deposit available for an IP. We don t really love the house we live in but we needed to buy quickly and currently looking for something better. If we find something else before 1 year we would rent the new property out for a few months and then move into it to avoid stamp duties repayments. And then rent the first one out so we can apply the 6years rule (due to the fact we lived in the house for 12 months) . I have some questions:

_ the loan on the new property would be higher rate as IP. When we move into the new place, is it possible to ask the bank to adjust it as first home rates according to the fact that it is now our primary residence?

_ are the IP loans amounts usually bigger than the first home loans? I mean if we would be able to borrow more if it s an IP. (the bank seems not caring about the fact that we already own a house)

_ is the above a good strategy or a different move would be better? Like moving straight away into the new place or other things? Please advise

_ should I ask for any valuation at any time of both of the houses for some reason?

Thsnks for any help

 

1. yes
2. depends on servicing. the bank will certainly care about the fact that you already have a home. But if you have paid cash there is no adverse affect on servicing. If the second one is an IP you could use potential rent. But if it was to be the main residence you could use the potential rent on the current one - for servicing.
3. A better strategy would have been to borrow for the first one
4. If the first one becomes income producing it would be good to get a val at that point for CGT reasons.

 

One thing that hasn't been mentioned is first home buyer benefits. If you are a first home buyer and received any benefits on the first purchase (reduced stamp duty, grant, etc) you may have to pay these back if you move out within 12 months.

Just worth being aware of if it's relevant.

 

Thanks, no grant just the stamp duty concession of approx $7000. That s why we are thinking of living here for 12 months.

 

Thanks for the info!
I have another couple of questions please:

_ just to make sure to be valid, the 6 years rule starts after 12 months of living in the house?

_ what kind of loan should we start with when we rent out the new place? Interests only so we can deduct for those months for tax purposes or a different one? And then when we changed the loan into first home rate can we change the kind of loan as well?

Thanks again

 

@Terry_w got you covered.

 

no. There is no waiting period

That is something you need specific credit and tax advice on

 

There's a few decisions to unpack in this question. You may have a choice to set it up as an investment or an owner occupier loan. I'd want a deeper understanding of your circumstances before suggesting which way to go on that question.

As for P&I or IO, if this is going to be your forever home, I'd go with P&I. There's a couple of reasons.

*** IO rates for owner occupier loans are often the same or higher than investment IO rates. The banks are actively discouraging IO owner occ loans. Many banks will simply refuse to do them.

*** On your own home, IO will cost you more. (Hint: the rates are higher).

*** Over a couple of months, the tax deductions you'll miss out on by going P&I is almost nothing. If we ever meet, I'll buy you a cup of coffee to make up for it. If fact if you don't put a tenant in the property, you're probably not going to get any deductions out of it at all.

There might be more to your cirustmances that do warrant IO for the new property, but in most cases paying off your PPOR is going to be better in the long run.

 

I think it's clear that you need to engage a good mortgage broker to assist you

 

But can’t you only claim 6year rule on 1 property so if you move into the second on then you can’t claim that on both.

 

Thanks I cannot understand this rule very well.... Could you please clarify if you have a minute? So what I got is: when you sell, you do not pay capital gain only for the years you have lived into the house as a primary residence. So what is 6 years rule?
Thanks!!

 

You can only claim one PPOR at any given time, hence the CGT exception only applies against one property at any point in time. You get a CGT exception on the first property until the time you move to the next property. After that it applies to the new home.

The 6 year rule on the first property doesn't apply in this case because you'll get the CGT exception against your new home.

 

The 6 year rule could potentially apply against the first property.

 

Are you suggesting it's possible to get overlapping periods CGT free across two properties?

 

I have spoken to the accountant and the bank. I just was thinking about your suggestion to borrow for the first home at answer n. 3.
I was told I can change the loan rates if/when the IP becomes first residence and that s good. However In that scenario, I will not be able to claim the loan interest, as the loan would become for our PPOR.

How could we avoid this?

I. E. Is it possible to apply for a loan on our current property even if we already bought it and paid for it so we can then modify the loan into IP when renting this one out and deduct the interests? If yes, how long do we have to apply for a loan considering we have already settled?
If not... Any other suggestion?

Thanks again for your help much appreciated

 

If you have already purchased the first property you cannot borrow to acquire it any longer. (That's why I used 'would have been')

 

no

 

In a situation where a family was relocating from a rural area to a metropolitan area for specialist medical treatment not available in hometown for a year and lived in an IP in the metro area, with no income from either property, could there be an exception for CGT, for that period?

 

Thanks.
The bank has confirmed a very low loan they said they consider the income only. So if we buy as IP they basically consider the low income from that rent plus my husband income. It s less than some of our friends who do not own a house at all! How come?

 

The legislation doesn't have any exemptions for something like this.