Loan Structure and Debt Recycling

Discussion in 'Loans & Mortgage Brokers' started by Kremitz, 4th May, 2020.

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  1. Kremitz

    Kremitz Active Member

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    Our fixed loan for our PPOR is about to end and we are able to access some equity based on the new valuation. We are now looking to refinance to a another big 4 for better rates and due to better valuation. Say we are able to get $50k equity from PPOR, we have 50k in the offset that we are planning to use as additional deposit for our first IP (together with the equity) and we have another 50k also in the offset which is meant to be an emergency fund so we don’t want to touch it. Then we are able to save another 20-30k in the next 6-12 months where we can use some of the fund as payment for a BA.

    We obviously want to take advantage of the increase in valuation and equity now thus we wanted to do the refinance. We are thinking valuations may soon go down due to corona virus so we want to act now.

    We have a few ideas in mind but would be keen to get some more ideas to help us decide the best way to structure our loan and also would be keen to do debt recycling. If you can please share your thoughts on how should we structure our loan and also do debt recycling? Given that our goal is to purchase an IP within 6-12 months. Where do we park the equity, the 50k that’s meant for deposit for IP, and 50k as emergency fund. Thanks.
     
  2. Jess Peletier

    Jess Peletier Mortgages, Finance & Property Strategy Aust Wide Business Member

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    Hey there :)

    Do you have a broker? They should be able to structure this correctly for you - grab one from the forums and they should be able to do it properly.

    We're running a masterclass tonight on debt recycling which will walk you through the nuts and bolts of it - send me a pm if you're interested.
     
  3. Terry_w

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

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    Tax recycling is tax advice, so see your tax agent/lawyer about the tax aspects.

    Borrowing further against a main residence is not debt recycling - but just borrowing to invest.
    Tax Tip 219: Debt Recycling v Borrowing Extra to Invest Tax Tip 219: Debt Recycling v Borrowing Extra to Invest

    Debt recycling is when you pay down a loan and reborrow to invest. So work out what amount this will be and set up a separate split for this amount.

    If you want to borrow money now, in addition, but not use it yet, you should probably set up a new offset account against that split and park the money there for now. Then before using it put it back into the loan and reborrow it.

    Seek tax advice.

    Jess - are you licensed or qualified to be running debt recycling 'master classes'?
     
  4. Jess Peletier

    Jess Peletier Mortgages, Finance & Property Strategy Aust Wide Business Member

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    It's educational - no advice on tax or share purchases. However the implementation is loan structure which as you're aware I am licensed to advise on :)
     
  5. Terry_w

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

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    Brokers cannot advise on debt recycling as it is a tax strategy - the conversion of deducttible debt into deductible. pure tax advice. Your insurance will not cover you either
     
  6. Jess Peletier

    Jess Peletier Mortgages, Finance & Property Strategy Aust Wide Business Member

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    It's tax, loan and financial strategy. Realistically you also can't advise on it unless you're also qualified financial planner because shares are involved.

    Lines crossing all over the place.

    Again - it's education, not advice. Disclaimers are in place, you need an accountant etc. etc. etc...

    Personally, I'd rather introduce my clients to the concept so they can explore it further with the appropriate professionals, then let them play on...all the while KNOWING what they're doing is potentially costing them thousands of dollars each year.
     
  7. Kremitz

    Kremitz Active Member

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    Yes, I have a broker. Just wanted to get some ideas here if there is another way to structure our loan.
     
  8. Kremitz

    Kremitz Active Member

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    @Terry_w would you suggest to pay down the PPOR loan now with the $50k savings that we have in the offset and then borrow 50k to add to our deposit then just park it in the offset together with equity?
     
  9. Terry_w

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

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    I hold qualifications in financial planning - but not am not currently licensed
    However, I do not advise on what to invest in, so no risk there as I never give financial advice.

    Not sure how a broker could educate people on a tax strategy.
     
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  10. Terry_w

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

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    I would suggest you get some tax advice - from a tax agent or tax lawyer.
     
  11. Kremitz

    Kremitz Active Member

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    I have just refinanced my PPOR and was able to do a split loan say 50k to put towards a deposit for an IP. The offset accounts that we have were not properly linked the way we want it to be. The 50k in offset was not linked to the 50k IO loan so I will be paying a few dollars for a couple of days of interest that it was not linked. Is it ok if the payment for the interest is coming from that same 50k offset account or should it be paid from another offset account so as not to contaminate the 50k offset acct that is meant to be used for IP deposit?