Joint Loan issue - impacts of possible solution

Hello guru's, I am seeking advice regarding our situation.

My wife currently has a IP which she jointly holds with her parents (50/50 split) and we are investigating ways to simplify this arrangement so the property doesn't negatively impact our serviceability requirements for a future PPOR purchase in the next year or two.

Unfortunately, the simple solution of selling the property (or buying out the other half share) is a non starter as my wife's father is defiantly against such a plan, and my wife doesn't wish to push the issue.

Today he suggested a strategy which might improve the situation for us an I want to see if it is workable before shelling out more money seeing a profession for advice.

Essentially he has sufficient funds to pay out his current remaining portion of the loan and would do so if we did the same. Unfortunately we do not have these funds at present. He stated that we could draw down on the equity in our current home loan and use this to close out the investment loan and since this process is a loan against an income producing asset we will maintain tax deduct ability.

This would improve our serviceability as currently my wife only benefits from half the rental income but is assessed against the full value of the loan. This process would remove/reduce the impact of the loan on our serviceability arrangement and would increase the deductible funds against our current PPOR (which will itself eventually become a IP).

Would drawing down on equity in this way to pay off an investment loan produce a deductible loan? Is there some impact to serviceability that I am not seeing.

I have tried searching the forums for an answer but most examples are either IP to IP OR PPOR to IP (but a new purchase not pay out of an existing loan).

Thank you in advance for your assistance and experience in this regards.

 

You would simply be refinance one loan with another and that does not change the deductibility of interest.

But that is money tied up in the property which you cannot use elsewhere.

 

Thank you Terry. I understand the unsuitability of scenario but with this method we would be focusing on reducing the impact of serviceability borne by my wife's present loan. The sums involved are relatively small but it has been an issue before with some banks given my wifes present status (maternity leave). It simplifies the relationship with her father also as presently any financial decision making must involve him because of this loan.

We would/will probably still do this even if deducatbility wasn't possible but knowing that it isn't affected (provided appropriate steps are taken to ensure no mixing of loan/funds or other possible issues) helps overall.

Thank you again.

 

The other option is the common debt reducer where only the wife's 'share' of the debt is taken into account - based on ownership %.

Speak to a broker about what impact the 3 different options would have on servicing.

 

a 4th option might be for your wife to borrow off her father for what her share of the debt is and the mortgage discharged.

 

You can use a common debt reducer policy thays offered by a few banks to proportion the debts so servicability isn't affect.

To give more options for borrowing then paying out the investment loan may be an option, assuming you have sufficient usable equity.

 

I cannot say much besides, having property, or, any business most likely, outside of with your spouse is a recipe for pain down the track....

I wont butt into your business, but is your wife devoted to you, or still have a foot at home ? cause if it were me, I would be saying sell off your part, or, the oldes buy you out and none of our funds go toward the place.

There are so many implications really.

 

It depends on how it is structured. It could be set up so it is still deductible to one or both of them.

 

yes, but it would be smaller than before