Loan structuring change when changing from PPOR to IP

Discussion in 'Loans & Mortgage Brokers' started by nickthegun, 9th Feb, 2020.

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  1. nickthegun

    nickthegun Member

    Joined:
    11th Nov, 2018
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    Location:
    Sydney
    Hi All,

    I posted the other day (Moving out of PPOR to rentvest) about my current situation.

    In short, we are moving out of our newly purchased PPOR and turning it into an IP.

    A footnote to this is that our $1.1m loan is currently P&I @3.09%. The advice I have received so far is there is no good reason to notify the bank about the change in use of the asset. However, am I missing a trick here?

    Seeing now as the interest will be fully deductible, should I not be trying to refinance it as an Interest only loan? From there we would just pay the interest each month and then use free cash flow to either:
    - build up in the offset (and potentially finance a further acquisition down the track)
    - potentially debt recycle and invest into equities

    Am I on the right track?

    Thanks
     
  2. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker Business Member

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    Changing to IO will likely to result in a much higher interest rate, especially if moving out.

    Keeping as a PI and an offset might be worth considering and extending the loan back to 30 years every 2 years or so will keep minimum repayments lower.

    Since the loan interest would be deductible anyway what is your idea on debt recycling?
     
  3. nickthegun

    nickthegun Member

    Joined:
    11th Nov, 2018
    Posts:
    20
    Location:
    Sydney
    I wasn't aware you could push the loan back to 30 years once you were a few years in - great tip (if it's true!)
    On second thoughts, debt recycling is pointless as you are right - it's already deductible - silly me.
     
  4. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker Business Member

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    You can't just extend a loan term, but would need to reapply. It might even mean a change of bank is needed.

    There are many reasons why you would still want to debt recycle debt that is already deductible. I think I have written a tip on this somewhere, but some reasons include
    a) if you will move back into the property at some point or
    b) if investing using different entities.