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How to release equity

Discussion in 'Property Finance' started by Brad81, 1st Jul, 2015.

  1. Brad81

    Brad81 Active Member

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    Hi guys I have a newbie question and I apologise if I've asked a similar question in the past

    I have 30k in equity I can use. My broker is currently arranging its release by increasing the total amount of the loan from which it's being released from. This loan is IO so I cannot make repayments on the equity amount to reuse later for Reno's or as another deposit so essentially it's being locked in until CG produces more equity or I swap it over to P&I and have huge repayments to reproduce that equity.

    Should I be getting this 30k released via a seperate variable interest loan that I can pay down through P&I repayments (which are obviously smaller because it's only on a 30k loan) and have a redraw on that?

    Thanks in advance
     
  2. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    You should not be increasing the same loan but setting up a separate split. IO.

    You should be able to make extra repayments on an IO loan.
     
  3. Brad81

    Brad81 Active Member

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    What's the benefits of a separate split IO? And why should I do it that way? Is that the same thing as my above mentioned variable interest loan?

    Does the extra payments on an IO loan reduce principal or just leave extra funds sitting for the next IO payment?
     
  4. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Separate split means you won't have a loan with mixed purpose - see my other posts for more detail. it is not the same as you mentioned.

    Extra payments into a loan means the principal is being reduced.
     
  5. Brad81

    Brad81 Active Member

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    Fantastic mate thanks for the education
     
  6. Brad81

    Brad81 Active Member

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    Which particular posts explain this mate please?
     
  7. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    I'm not sure why this is the case - I think you might be wrong? You can make repayments into an IO loan.
    If this is being taken from your PPOR, this is a particularly bad idea - as Terry has said, it creates a mixed use loan.
    What your broker is doing is a top-up, ie just making your loan bigger. You need to have a separate loan for your equity. This is because if you just have one big loan against your PPOR, you have both deductible and non-deductible borrowings in the one loan which creates a big tax mess.

    Having a separate split means the deductible debt is totally separated and makes it easy to know exactly how much interest you can claim.
     
    teg499 likes this.
  8. Brad81

    Brad81 Active Member

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    This has been put against an investment property, we don't have a PPOR. This was originally a PPOR but we moved out and turned it into an IP.

    Does this make things better for the way it's been set up?
     
  9. swanqueen

    swanqueen Well-Known Member

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    If we're redrawing equity from an IP for investment purposes, eg buying a new IP, would it need to be in a separate split as well?

    Over time if one redraws multiple times from the same property and have them in separate splits, that's a lot of loans (and fees) to manage!
     
  10. Ruud

    Ruud Member

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    So please correct me if I am wrong. First time (planning to be) investor.
    I have a $500k loan on PPOR and now have 300k equity.
    I am in the process of refinancing and trying to get a $800k loan so I can use the $300k equity for an investment unit.
    So I should be trying to get the $300k loan on a slit loan and not get just one loan of $800k?

    The original plan was to take $800k loan and put that extra $300k in the offset account until I find an IP.
     
  11. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    no
     
  12. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    In general look to have
    separate loan secured toyour PPORr for the dpoesit and costs for the new IP

    Separate loan secured ONLY to the new IP for approx approx 80 % of the purchase price with he balance coming from the other loan.

    get some specific tax advice before you let your banker.broker muddle up things if they have suggested the single 800 k loan

    ta
    rolf
     
  13. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    Not necessarily - keeping track via an excel spreadsheet would work too. It's just important you do keep track in some way, or it's easy to accidentally keep claiming interest on a property that has either been sold/turned into a PPOR etc.

    If you do want to live in it later, I'd suggest splitting first up to keep it simple later.
     
  14. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Don't do this or you may not be able to claim the interest.

    Loan A $500,000
    Loan B $300,000
    Loan C = 80% of the new property value.
     
  15. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    You will definitely want to have that $300k in a separate split. Absolutely, not negotiable :)
     
  16. Brad81

    Brad81 Active Member

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    Ok then, will this still cause tax issues?

    If it's all deductable interest payments does it not make it simpler than separate loans
     
  17. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    It could be all one big loan but you would need to apportion interest between the 2 purposes and if you sell one you have to work out how much to repay. If it is one big loan and you make a deposit then you will be repaying both portions. means you lose deductions.
     
  18. Ruud

    Ruud Member

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    I've asked the banker to do it as follows:

    PPOR Loan Account $500k + Offset Account
    Equity extracted account $300k + Offset Account (to be used for future IP)

    So this will be split. Correct.
     
  19. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    Perfect. CBA?
    Just be sure they put the new funds in the right offset account at settlement!
     
  20. Ruud

    Ruud Member

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