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How to structure our loan?

Discussion in 'Accounting & Tax' started by Mathew Tran, 12th Jan, 2016.

  1. Mathew Tran

    Mathew Tran Member

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    Hi All,

    New to the forum and have been reading a lot, Terry seems to be very knowledgeable in this space... with lots of tip!

    I have some questions for the guru's...
    We are currently renting but have purchased an investment property and wanted to know how to structure the loan as I have been reading that the foundation is the most important.
    Right now our loan is with ANZ Breakfree and is P&I With an offset account.

    I'm in the process of changing this over to a Interest only with offset account through our broker, is this the right way to go?

    The other question I have is is it OK for us to deposit our cash into this offset account?
    If we refinance with a view to release the equity to purchase another property I've read that it should be to a different account separate to the offset account to avoid contaminating the loan, is that correct?

    Thank you so much in advance!
    M
     
  2. Jamie Moore

    Jamie Moore MORTGAGE BROKER - AUSTRALIA WIDE Business Member

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    Possibly.

    Do you think you'll ever purchase an owner occ property in the future?

    Are you disciplined with your money?

    Yep - an offset account is a nice spot for your savings.

    Yep - it's a good idea to set up a separate loan for the next property.

    Cheers

    Jamie
     
  3. Mathew Tran

    Mathew Tran Member

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    Yes we will definitely purchase a PPOR in the future and would like to think we are very disciplined with our savings money.
     
  4. Mathew Tran

    Mathew Tran Member

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    Having the loan structure like that is the interest on the loan still deductible?
     
  5. Jamie Moore

    Jamie Moore MORTGAGE BROKER - AUSTRALIA WIDE Business Member

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    Sweet as.

    Interest only with an offset makes a lot of sense then.

    Keep all your cash in the offset.

    Use it later on for your PPOR purchase.

    Cheers

    Jamie
     
  6. Mathew Tran

    Mathew Tran Member

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    I've been reading some more Terry Tax Tips and am worried about a few things.

    Initially to purchase the investment property we used some cash and some equity from one of my partners property.

    The scenario is;
    IP 1 $500,000
    Loan from Bank 420,000
    Cash used 30,000
    Equity from one of my partners property 50,000

    Is the interest on IP1 still deductible? :eek:
     
  7. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Depends how the equity was used.

    But the using of cash means you miss out on years of future deductions.
     
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  8. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    How was the equity part set up? If it was lumped into one loan it can cause issues - I would recommend splitting that portion off so it's separate if possible.
     
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  9. Mathew Tran

    Mathew Tran Member

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    The equity was used as a deposit for the house.

    I thought we had no option at the time and used cash.

    Any advice no how to rectify this?
     
  10. Mathew Tran

    Mathew Tran Member

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    The 50,000 equity was drawn from my partners house. This was separate equity loan.

    What problems will we face?
     
  11. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Can u explain teh $50k further? Did you pay directly from the loan to the destination or did it get deposited into a bank account first?

    You cannot rectify using cash. Once an item has been bought with cash it cannot be substituted with borrowed money.
     
  12. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    As long as it was split and paid directly you should be fine :) The real issues arise when the loan is all lumped in together but that doesn't look like the case here.
     
  13. Mathew Tran

    Mathew Tran Member

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    Hi Terry,
    The $50k was paid directly to a offset account first then paid directly to the loan. It sat in that offset account for about a day or two. This offset account has money deposited into it to pay for my partners mortgage.

    IP 1 $500,000
    Loan from Bank 420,000 (has offset account)
    Cash used 30,000
    Equity from one of my partners property 50,000.
    Partner property which has an offset account the equity was paid into this account.

    Sorry if i left out any information
     
  14. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    The interest on the $50k loan won't be deductible - at best it could possibly be claimed in part, but a difficult mathematical exercise to work out.
     
  15. Dwalsh

    Dwalsh Well-Known Member

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    Can using cash though help with your serviceabilitly in the future ? As your not borrowing the extra money ?
     
  16. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Cash will definitely help servicing as the loans will be smaller. But ideally any cash should go off the non deductible debt an reborrowed first as this will help more.
     
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  17. Mathew Tran

    Mathew Tran Member

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    Hi all,
    Appreciate all the responses so far, it's been very helpful.

    So while in the process of changing over to IO only is it also wise to split the only into smaller chunks as described in one of Terrys Tax Tips? \
    In his example it seems to do it against the PPOR, as we do not currently have or live in one can we split our Investment Property loan?

    Thank you very much
     
  18. Dwalsh

    Dwalsh Well-Known Member

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    If you want to refinance to get money out of the IP for another investment then yes. Split loans and avoid crossing your loans.
     
  19. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    If you mean this one
    Tax Tip 13: Simple Loan Structuring Strategy

    Then it is not necessary to split like this unless you will be living in the property. This is just for when you are paying down debt and using debt recycling.

    But if you are borrowing against a property with an existing loan then it is always better to split the loan. This is because you can then easily know which loan has been used for what purpose. And it will avoid mixing issues.
     
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