How will you deal with the rollover of your IO loans into Principal and Interest payments?

Discussion in 'Loans & Mortgage Brokers' started by Whiz, 14th Jul, 2018.

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How will you deal with rollover of IO loans to P&I payments on your investment loans?

Poll closed 23rd Jan, 2020.
  1. I intend to sell a property within the next 12 months

    8.9%
  2. I intend to sell 2 or more properties

    3.4%
  3. I will have to sell most of my properties

    0 vote(s)
    0.0%
  4. I'm already selling

    2.8%
  5. I can manage the P & I repayments - just!

    25.1%
  6. I can manage the P & I repayments easily

    59.8%
  1. PandDos

    PandDos Active Member

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    you might need to explain what you mean??

    you start with a 700k investment loan and extend the loan by 100k to 800k. the loan extension is for investment purposes and the 100k is put in an offset account which is exclusively for investment

    800k investment loan, 100k investment offset.

    so long as the loan/offset is used for investment purposes the tax implications should be simple. 100% of the interest is tax deductible.

    The offset might be used as a deposit on next investment, it could be used to finance an investment renovation, or injected into an investment loan to pay it down... they would all be considered investment costs.

    am i missing something?
     
  2. Terry_w

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

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    Read the comments in the thread I wrote and also my tax tip 1

    There are many potential tax issues which mean it is not clear cut, that is why I ask if you received tax advice.
     
  3. hieund85

    hieund85 Well-Known Member

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    Mixed purpose loan is my feeling. Like @Terry_w said, I would seek tax advice if I were you.
     
  4. hieund85

    hieund85 Well-Known Member

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    Not an advice since I am not qualified but here is my thought.
    - $700k is loan for assest producing income so interest may be deductible
    - $100k is to pay down principal of a mortgage so hard to convince it is for income producing so interest may not be deductible
    - $700k and $100k are mixed into one loan so principal payment comes out of the $100k offset cannot be splitted for the two portions.
     
  5. PandDos

    PandDos Active Member

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    right now i'm on a discussion forum taking to a tax lawyer, whos saying i should talk to a tax expert. are you trying to drum up business?
     
  6. PandDos

    PandDos Active Member

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    well if your covering the interest yourself and only using the offset for principle.. you'll only effectively be paying interest on the original amount of 700, whether its 800 with 100 offset.. 750 with 50 offset.. or 700 with no offset. at the end you have never paid interest on anything other than 700 and your loan will be back the starting amount of 700.

    the only thing you achieved is the benefits of an IO loan with the lower rates of P&I. it would seem to be more of a bank loop hole rather that a tax one.
     
  7. Omnidragon

    Omnidragon Well-Known Member

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    Have 8 more years of IO to go. Hopefully will survive until next boom. Probably sell everything before then.
     
  8. Terry_w

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

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    You don't have to use me for advice, I was just asking have you had any as I am interested in the outcome. 2 other tax professionals had doubt on that other thread. I am more confident tho.
     
    TheSackedWiggle and Perthguy like this.
  9. Terry_w

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

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    But you are really capitalising the loan. Borrowing to pay the loan. You are borrowing to pay interest because when repayments are made there is not separate payment of principal.
     
  10. Perthguy

    Perthguy Well-Known Member

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    There could be a payment of interest and a separate payment of principal, calculated monthly, although the ATO would probably treat each payment as mixed? Or would they if the payments were made concurrently (i.e. a minute apart)?
     
  11. Terry_w

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

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    I am not sure how they would treat it. I suggest a private ruling to find out. Anyone interested?
     
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  12. sammmeee

    sammmeee Well-Known Member

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    Nah values are really bad. Probably good to start paying down debt and building equity again. Next year will be the make it or break it year!
     
  13. The Y-man

    The Y-man Moderator Staff Member

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    Are the interest rates on the PPOR loan and personal loan the same?

    The Y-man
     
  14. The Y-man

    The Y-man Moderator Staff Member

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    ... especially for those like me who get a share of that money gouged from borrowers....

    The Y-man
     
  15. Whiz

    Whiz Well-Known Member

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    Couldn't add any more options once the poll had been posted. However, the main purpose of the poll was to get an idea of the pressure being felt by members with the conversion to P&I from IO.
    If you are in a position to borrow more, or refinance in some combination then voting for option 5 or 6 would be appropriate as you are essentially able to pay P&I, as far as the banks are concerned.
     
  16. Lacrim

    Lacrim Well-Known Member

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    Being someone who has a large portfolio, I'll be affected by the changes (and am already being affected). My offset balance is being drained slowly to fuel the principle repayments. If I was fully IO, I'd be slightly positive. I'm a classic asset rich, cashlow poor case.

    Am currently weighing up options, including working vigorously with one of my primary banks to lessen the blow - am a few years away from HAVING TO SELL something but want to avoid a forced situation.

    Fortunately, and based upon current vals, I have enough equity to retire on a passive income circa $100-120K pa, whilst holding on to a number of quality assets. That figure would push $200K if I sold everything sans the PPOR. $120K would probably afford us a reasonably comfortable lifestyle and 4 overseas trips a year during school holidays. $200K would push us into wasteful territory.

    BUT, I still haven't come to grips with letting go of (any) properties yet.

    See here for my lack of decisiveness :( Pull the pin now or wait?
     
    Last edited: 28th Jul, 2018
    Perthguy likes this.
  17. Terry_w

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

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    Lacrim

    Can u try to extend loan terms back to 30 years to lessen min repayments?
     
  18. Lacrim

    Lacrim Well-Known Member

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    At the moment, no tx to new serviceability calcs. But the door to extend IO (5 to 10 yrs) is not fully shut....and that's the option I'm looking into.

    My gut tells me that a significant rennaisance period of rental growth in Syd and Brisbane isn't too far away (not months away but it's due perhaps in 2-3 yrs) - and that's when those with a large portfolio in these areas will be glad they held on.

    As mentioned, I see zero benefit in paying down principle on IPs. There is no real upside whatsoever (that I can see) to the borrower apart from satisfying 'prudent lending regulations'.
     
    Last edited: 28th Jul, 2018
  19. PandDos

    PandDos Active Member

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    Apologies Terry. I have read about the technique being used but they did not go into the details of what structure it was done in. I have not been advised by a tax expert yet, but it is on my list to do. I’ll update you if I get a good answer. Cheers
     
  20. Rex

    Rex Well-Known Member

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    Better interest rates?