how to structure my loan

Discussion in 'Loans & Mortgage Brokers' started by newbie property, 4th Nov, 2015.

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  1. newbie property

    newbie property Active Member

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    Having a home loan for my own home, equity is 180K (free to use), wanting to buy the 2nd ppty worth $450K, not sure how to structure my loan now, both pptys are fine to live in, guess there are two ways to do the loan, please help to see which one is better:


    1) Taking some equity out to buy the 2nd ppty, using 10% for it, then borrow 90%, ie $405,000 as an investment ppty.

    Or


    2) Move all the 180K to the 2nd ppty and treat it as my home, leaving the 1st ppty as investment ppty. So will be owing 180K for the investment ppty, and owing 270K for my own home loan….

    Is my understanding correct? Which way is the best for facilitating the funds?


    Thank you for help!
     
    newbie property, 4th Nov, 2015
    #1
  2. Azazel

    Azazel Well-Known Member

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    Do you have the option of living in either one?
     
    Azazel, 4th Nov, 2015
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  3. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Your understanding is not correct. It is not the security for the loan that determines deductibility, but the use of the borrowed funds

    Tax Tip 22: Security for a loan does not determine Deductibility of Interest https://propertychat.com.au/communi...not-determine-deductibility-of-interest.3008/
     
    Terry_w, 4th Nov, 2015
    #3
  4. Jess Peletier

    Jess Peletier Mortgage Broker & Finance Strategy, Aus Wide! Business Member

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    Whatever the debt is on your current PPOR will not change, you'll be borrowing the entire amount for the IP regardless. So if you move into the IP as a PPOR you'll have a 100% financed PPOR, and your current PPOR will turn into an IP. The debt on this one will remain the same.

    So, if your current PPOR debt is currently zero, it will remain zero and all the borrowing for the deposit, costs, and the balance of the loan for property 2 will be attributed to property 2.
     
    Jess Peletier, 4th Nov, 2015
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  5. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    On the surface, you may benefit from a debt recycling strategy either way............


    ta
    rolf
     
    Rolf Latham, 4th Nov, 2015
    #5
  6. newbie property

    newbie property Active Member

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    yes, i can live either one....
     
    newbie property, 4th Nov, 2015
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  7. newbie property

    newbie property Active Member

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    Hi Jess,
    thanks for your reply!
    just want to clarify,

    My current home is paid off but loan is not closed, hence I’m having 180K to use as equity (can do free redraw), if I transfer all these money to the 2nd ppty (cost $450,000) and treat the 2nd one as my home, leaving the 1st ppty as investment ppty. Does it mean I’ll be having 180K investment loan, and my home loan will become 270K (from $450K - $180K)?

    Will Redraw be a problem for tax deductions in this case? any ideas?

    Thanks again!
     
    newbie property, 4th Nov, 2015
    #7
  8. Jess Peletier

    Jess Peletier Mortgage Broker & Finance Strategy, Aus Wide! Business Member

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    You'll be best off financially staying where you are.
     
    Jess Peletier, 4th Nov, 2015
    #8
  9. Jess Peletier

    Jess Peletier Mortgage Broker & Finance Strategy, Aus Wide! Business Member

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    No, the whole $180k plus the $270 balance will be for the new house - it's not the security for the loan that matters, it's the purpose that the funds were used for. In this case, they are all used to buy the second property.
     
    Jess Peletier, 4th Nov, 2015
    #9