Loan structuring questions

Discussion in 'Loans & Mortgage Brokers' started by Fenris, 8th Mar, 2017.

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  1. Fenris

    Fenris Member

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    I have a PPOR which I bought in Sydney for $800k in 2014. Paid 20% deposit so I have an I/O loan of $640k.Fast forward two years and I refinanced to CBA in 2016 and the house was valued at $1.15M. Pulled out equity so I have a second I/O loan of 280k.

    In summary:

    PPOR:
    Loan 1 I/O: $640k
    Loan 2 I/O: $280k not drawn down
    Rate: 3.92% variable
    LVR: 80%
    Current estimated value: $1.25M to $1.3M

    Income/savings/other debt:
    Offset: $80k
    Combined income: $164k net. No dependents.
    Other debt: $0

    The equity was pulled out with the intention to purchase some investment properties. However, my wife and I have decided to sit tight and watch the market while we pay down debt into our offset account as we have been a bit loose with our spending in the past year.

    A few questions:

    1. Can I top up the loan and extract another $80-$120K equity without a reapplication?
    2. If we want to convert this PPOR to an IP and purchase a new PPOR (in the same price range), what would be the best way to structure this? Presumably, the deposit for the new PPOR should come from our offset plus whatever else we manage to save up.
     
  2. Terry_w

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

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    1. No
    2. As is using the new split has deposit and switch offset to new loan
     
    flyhere and Ross Forrester like this.
  3. Chris Au

    Chris Au Well-Known Member

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    @Terry_w/others , to clarify, you're saying that you can't pull out the loan you've paid back and put into loan 2? why would this require a new application if you've paid off part of the principal?
     
  4. Terry_w

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

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    Redraw could be possible
     
  5. Jess Peletier

    Jess Peletier Mortgage Broker & Finance Strategy, Aus Wide! Business Member

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    You can't increase the loan limit without a new application. Redraw of extra funds you've paid is fine.
     
  6. Chris Au

    Chris Au Well-Known Member

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    Thanks @Terry_w and @Jess Peletier . In the example above, if the OP has a non-deductible loan that they have partially paid down, and a deductible loan that is fully offset (ie no funds used), then they would only be able to redraw into the non-deductible loan, making the funds non-deductible, or a mixed loan at best?
     
  7. Terry_w

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

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    Interest is only deductible if it relates to borrowings used to invest or business use. Redrawing money is new borrowing so the interest will only be deductible if the borrowed money is used to invest.
     
  8. Chris Au

    Chris Au Well-Known Member

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    Thanks @Terry_w ,

    What is confusing me is could @Fenris pull out $80K without an application since they have made this $80K as additional repayments to the PPoR loan - even though these funds would be pulled out to a new loan under the PPoR? (I realise that the original question is to pull out $80-120K, and agree that anything over $80K would be increasing the loan limit), or is any creation of a new loan (regardless of whether it is under the original approval limit or not), a new application?
     
  9. Fenris

    Fenris Member

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    Thanks @Terry_w and @Jess Peletier.

    @Mac Fields I think you might be a bit confused. I haven't actually paid down any PPOR debt. The $80k in my offset is money I can take out whenever I want. It is not a redraw as both loans I currently have are I/O

    My question was more about getting a loan no.3 to the value of $80-$120k (depending on valuation) and whether this would require a full reassessment.

    @Terry_w I think I understand you right after reading a lot of your helpful tips. You suggested I could use my loan split as a deposit towards a new PPOR. This is obviously not ideal as I am borrowing for non-deductible purposes. But seems there is not really another option as the money I had originally used as a deposit for my current PPOR cannot be extracted (unless I sold the house). Is this correct?
     
  10. Chris Au

    Chris Au Well-Known Member

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    Thanks for the clarification about your situation @Fenris . Reading the OP, I thought your situation might be similar to mine where I have an IO loan with offset attached. I have actively paid off $150K from my PPoR IO loan and it is sitting against my loan as redraw (and as you highlight above, you can access this money you have paid back - but it doesn't matter if the loan is IO or I&P, any money you have actively paid off the principle is available for redraw).
     
  11. Terry_w

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

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    You could redraw from an existing loan but the interest on this loan would then need to be apportioned and you could not claim the interest relating to the money borrowed for the new property.

    Best to split the loan so you can pay down the non deductible portion separately