Loan repayment holidays - interest capitalisation opportunity

Discussion in 'Accounting & Tax' started by Blueskies, 20th Mar, 2020.

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  1. Blueskies

    Blueskies Well-Known Member

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    Just following the announcement today that several of the banks are offering 3 to 6 months repayment holidays due to coronavirus for residential mortgages. I assume the structure of this would be the interest would be added to the loan to be repaired over the remaining term. Just wondering if there is a debt recycling opportunity here?

    This is basically a chance for federally sanctioned interest capitalisation. Repayment holiday on all IPs with surplus funnelled into reducing PPOR debt?

    @Terry_w @[email protected] any merit to this?
     
  2. Trainee

    Trainee Well-Known Member

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    Looks like you would have to prove hardship to get it.
     
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  3. Redwing

    Redwing Well-Known Member

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    @Blueskies

    you'd have to meet certain provisions though wouldn't you i.e being unemployed?

    Also I don't think its for IP's, happy to be wrong though :D
     
  4. Morgs

    Morgs Well-Known Member Business Member

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    This wouldn't be a line I'd go down purposefully...
     
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  5. Peter_Tersteeg

    Peter_Tersteeg Well-Known Member Business Member

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    Keep in mind that some lenders might charge the interest at the default rate during this period, which is usually 2.0% higher than the actual rate. Given how low rates currently are, that's about 60% more interest you might currently be paying.

    I also wonder if capitalised interest is deductible.

    If you can a better option would be to simply pay down as much of the loan as you can whilst rates are so low.
     
  6. Terry_w

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

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    No change as to whether the interest on interest would be deductible or not. Seek tax advice prior.
     
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  7. Blueskies

    Blueskies Well-Known Member

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    I think your right, just looking for a silver lining should you end up in that position!
     
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  8. Paul@PFI

    [email protected] Tax Accounting + SMSF Business Plus Member

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    Any deferred repayment does not change the deductibility and the tax rulings are pretty clear. Lenders are not making free loan arrangements for investors so if that is your idea ...drop off. These arrangements are for those in need not those who need to take advantage

    Home owner loan concessions don't seek to impose penalties but investors have not been offered any concessions