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IP to PPoR - lots of fun

Discussion in 'Accounting & Tax' started by Azazel, 27th Aug, 2016.

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  1. Azazel

    Azazel Well-Known Member

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    Hey guys, we bought a place last year with the aim of moving into it eventually.
    Because of the lending restrictions and AMP changing their minds, we had to go with a lender who could get it done quickly - but didn't have an offset facility.
    Now we're changing from IP to PPoR, we are looking at changing lenders so we have an offset facility. This means we will lose the LMI we paid, and have to pay it again, or pay 20% deposit.
    ALSO, for the deposit we originally used equity from another IP.
    So the questions:
    1. Does moving lenders and losing the LMI we paid make sense with what we will save over the long term?
    2. What are the ramifications of previously using the equity from an IP for the deposit when we change this one to PPoR?
     
  2. Colin Rice

    Colin Rice Mortgage Broker Australia Wide Business Member

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    1. Depends on how much lmi you paid and the new interest rate v old interest rate plus refi costs. These figures will determine the time frame involved to recover costs.

    2.The deposit derived from equity in other IP is now a non deductable debt as purpose of funds have changed.
     
    Last edited: 27th Aug, 2016
  3. Azazel

    Azazel Well-Known Member

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    So would we get the new loan to cover that as well (pay out the deposit from the equity that's on the other IP loan - not sure of the correct terminology, hope it makes sense)?
     
  4. Colin Rice

    Colin Rice Mortgage Broker Australia Wide Business Member

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    You can just leave it as is and continue to make interst only payments but not deduct the debt as its now changed purpose from IP to PPOR.

    Go IO on the new loan with offset so if it ever gets reconverted to an IP you will preserve the principal loan amount for future max deductions.

    Focus on building up cash reserve in offset to decrease IO payments. You can use this cash in offset for a future PPOR or to debt recycle against current PPOR for future IP purchases.
     
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  5. Azazel

    Azazel Well-Known Member

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    That's the plan, change the lender so we have an offset account. And good idea, it's possible this could become an IP again.

    Yeah, that's the aim, keep putting money in the offset.

    What becomes of the deposit for this IP that was from equity on the other IP loan? Is there a way to "pay that out" with the new loan/lender, so we don't cross contaminate the IP/PPoR stuffs?
     
  6. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    1. I wouldn't move lenders as paying LMI again is a waste of money. Wait till you hit 80% LVR and move.
    However if you move lenders before moving in you may be able to claim the rest of the LMI that you haven't already claimed.

    2. Keep as is and stop paying the interest
     
  7. Azazel

    Azazel Well-Known Member

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    The deposit with the current lender will be "locked in" and we'll have to pay another deposit if we change to a new lender. We could pay 20% with a new lender, but then that 20% is gone/unusable again as well. Say we paid about $50k on a $450k purchase, new loan would be about $400k, deposit $80k of our own money will be used. That's like $130k gone on deposits that we can't use again. Does that make sense?

    So change to CBA for instance, and then move in, and then we can claim the rest of the LMI? I'm sure there's something there I don't understand.

    Do you mean stop claiming the interest?
     
  8. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Not sure what you mean about paying another deposit. You only pay a deposit when you buy. You seem to have borrowed this deposit secured against other property. If this is the case there is no need to do anything.

    If you refinance your loan will end so borrowing costs could be claimed in full at this point if the loan is an investment property. But get specific tax advice on this.

    Sorry yes stop claiming the interest on the loans associated with this property - including the deposit loan.
     
  9. Azazel

    Azazel Well-Known Member

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    We paid a deposit (and LMI) on the original loan. If we change to another lender, we need to pay a deposit again (with or without LMI, depending on the deposit amount)?
    We used equity from another IP as the original deposit. Not cross collateralised.
    I am clearly not a numbers man.
     
  10. Sonamic

    Sonamic Well-Known Member

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    Can you not just do a switch with the existing lender?
     
  11. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    No you don't need to pay a deposit again. You may need to pay LMI again though if the LVR is more than 80%.
     
  12. Azazel

    Azazel Well-Known Member

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    They don't have an offset facility unfortunately.
    Do you mean switching from IO to P&I?
     
  13. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    If you are going to live in the place why not just pay the loan down rather than incur LMI again?
     
  14. Azazel

    Azazel Well-Known Member

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    Yeah, that's what we were thinking, will do that if it makes sense. So that would be like topping up the original deposit an extra 8% added to the original <>12%?
     
  15. Azazel

    Azazel Well-Known Member

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    I'm hoping not to run into a boo boo here, but I am prepared for one.
    The IP loan plus the equity/deposit for this one are combined. I'm hoping it wouldn't become contaminated until we changed this IP to PPoR. Is there a way to separate it now or should we have done that originally?
     
  16. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    Can you not just put an offset against the deposit part (the bit secured to the IP) and leave everything as is?

    Split the IP loan to reflect the original IP loan and the funds used for your PPOR deposit, and put an offset against the PPOR deposit split.
     
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  17. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    How could it be combined without cross coll?
     
  18. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    e.g.

    $500.000 property 1

    Loan A $400,000 secured against property 1

    Loan B $100,000 secured against property 2


    Keep loan B as is and refinance loan A to another bank (if you must)


    If they were combined there would be no contaminations issues but they would be secured against 2 properties.

    Loan A $500,000 secured against property A and B.
     
  19. Azazel

    Azazel Well-Known Member

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    I guess that might be possible for the deposit, but would still have the majority of the loan as not offset?
     
  20. Colin Rice

    Colin Rice Mortgage Broker Australia Wide Business Member

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    Link an offset to that as well.