loan question/debt recycling

Discussion in 'Loans & Mortgage Brokers' started by igor1234, 19th Aug, 2022.

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  1. igor1234

    igor1234 Well-Known Member

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    26th Sep, 2016
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    sydney
    Can someone help me clarifying something about debt recycling please?

    let say i have ppor, value 1M, oustanding mortgage 100k with 100k in offset. so no interest beeing paid. i now want to buy an IP for 800k, so i borrow against equity, the loan is tax deductible and i have IP 100% geared (ignore the ~ 5% settlment cost) , 800k (PI or IO doesnt matter). its a separate loan, separate account, so my main PPOR still have my 100k with 100k offset
    NOW
    after 5 years, i want to move to this new IP to make it my PPOR, while my old PPOR is now valued at 1.3M. How do i structure the loan, to transfer as much as possible from that old ppor that will become an IP to the new PPOR, so that my new PPOR would have minimal interst? I understand that any equity u access from an IP to put in your ppor offset is NOT tax deductible.
     
    igor1234, 19th Aug, 2022
    #1
  2. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    14th Jun, 2015
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    Gold Coast (Australia Wide)
    Its not possible to transfer equity per se.

    While the initial purchase loan may be 100 % deductible, when that IP becomes your IP, all the remnant lending for the purchase becomes non deductible

    As at todays numbers, the old PPOR will have 100 k deductible against the new rental income

    Assuming you will have some borrow cap left, an aggressive active debt recycle strategy into shares/etfs may pay the non deductible loan much more quickly

    Suggest you seek tax, credit and financial advice before going down this route

    PS you can do an active debt recycle strategy in advance, ie while the new place is an IP, to convert some of the loan to deductible against new shares purchased, obviously with a separate loan split. The deductability of the recycled shares loan will remain when you move into the new place

    ta
    rolf
     
    Rolf Latham, 19th Aug, 2022
    #2
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  3. Terry_w

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

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    You simply move your offset cash to the offset account attached to your investment property loan - your new main residence as this loan interest would no longer be deductible while the interest on the $100k loan could be (assuming the $100k loan was used to buy that property).
     
    Terry_w, 19th Aug, 2022
    #3
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