Is it possible???

Hi this maybe a stupid question. I own my house and have for several years. I do own a number of investment properties which all have loans on them. Many years ago there was no difference or very little difference in interest rates on investment or owner occupied so being a good investor I concentrated on paying off my home. I now see a widening gap between investment loans and owner occupied. Is it possible to refinance my owner occupied home to gain access to cash to pay down some of the investment properties and pay owner occupied interest rates?

 

Not a stupid question, and yes you can refinance but WHY?

IP interest is tax deductible, PPOR interest is not. Your net cash position would be far worse if you went down this path to save 0.5% interest....

 

Most lenders determine the rate based on the purpose of the loan. So refinancing investment debt using your home as security wont get you a better rate.

There are a couple of lenders who determine the rate based on the security for the loan.

So it might be worth speaking to a broker and finding out if it’s worth changing.

 

Interest deductibility is determined by the purpose of the loan not the security - if you refinanced investment debt to be secured by your PPOR it’s still tax deductible (refinance principal).

Regards,

Jason

 

Thanks all for your replies. Thanks Phase 2 for your response this was going to be my next question but was answered by Jason C. Good to hear Rolf that it’s reducing it something I have never considered before but the difference at the moment it makes it worth considering.

 

Check this out with your accountant.
I’m no expert (and happy to be wrong!), but borrowing to pay down debt may not be tax deductible.
Marg

 

They usually charge based on purpose (most lenders at least), but releasing equity from the OO to pay down INV debt will likely be classified as investment purpose (and they'll give you the investment rate as such).

There are lenders that provide INV and OO loan rates together (i.e. same rate). Usually comes at a structuring cost though (cross X).

Also if its about helping pay of the loan as fast as possible, there are some inv loan products that are similarly priced to OO loan products from some of the smaller lenders (resimac are quite sharp, INV P&I variable @ 3.89%).

 

The security for the loan is irrelevant for tax deductibility

 

Yes it would be deductible. I have a strategy tip on this. We saved one client about $5k pa doing this. With written confirmation of deductibility being maintained (from my law firm)

 

First, you will want to get a broker to runs some numbers for you to see if you can service the debts and enable a refinance. Lots of changes to the negative in the past 18 months for borrowing capacity so will need to be on a high income if you owe a few mill?

Also you cant increase PPOR debt to pay down investment debt.

 

Why not?

 

Whoops! I may have slightly over indulged in the baijiu last night (a newly discovered favourite), and I should know better than to drink and post. Apologies @Brisbane04.

Of course @JasonC and @Terry_w are right

 

Thanks everyone for your replies. Maybe it wasn’t such a silly question. I’ve got some fixed term loans coming off in 10 months time interest only. As with a lot of investors getting a bit worried with whether I will be forced into P+I variable or having to accept high interest only. So looking at options to limit the impact of same.