Moving loans between properties

Discussion in 'Loans & Mortgage Brokers' started by Sanka, 4th Jun, 2022.

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  1. Sanka

    Sanka Well-Known Member

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    Was wondering how easy or difficult it is to move loans between properties.

    Ie say you have enough equity built up across the portfolio that ppor can be fully paid off (leave nominal amount just to leave that loan open).

    Is it easy to transfer ppor loan across to the IP loans (Same bank)

    Logically I would think this would be better from tax and borrowing capacity perspective moving forwards as less non deductible debt the better.

    Cant see any negatives of this if it's easy/possible to implement?
     
  2. Trainee

    Trainee Well-Known Member

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    Borrowing on ip equity to pay off nondeductible ppor loan doesnt make it deductible.

    talk to your tax advisor.
     
  3. Sanka

    Sanka Well-Known Member

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    Wouldnt be borrowing anything extra.

    Just recalibrating against which property the loans sit against. Ok to cross collaterise in this scenario if that's the only way (as long as ppor is not included in the cross)

    Would think logically its better for the bank (higher interest rates on investment loans and they can cross which they prefer). So win/win for all potentially..
     
  4. Terry_w

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

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    Yes, there are 2 ways to do it
    a) borrow extra against the new property and pay out the old loan, or
    b) substitute security

    It is better for you if you can end up with an unencumbered property. It is a bit safer, but you can later sell this property without paying out the loan used to acquire it - you can then reuse that loan for something else. Loan Recycle.

    No need to cross collateralise and this should be avoided.
     
  5. Sanka

    Sanka Well-Known Member

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    Understood will try avoid cross collaterisation.

    Substitute security yes that sounds good!

    Thanks Terry
     
  6. dabbler

    dabbler Well-Known Member

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    Moving or changing what secures a loan does not change the purpose the loan was taken.

    So you achieve nothing tax wise.

    The only way is what the loan was taken/used for, this is then the purpose for that loan.

    Sit down with an accountant, one that understands this aspect well.
     
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  7. standtall

    standtall Well-Known Member

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    Its funny how many people come up with this conclusion. A friend told me last night that due to rents going up, his portfolio is no longer negatively geared and hence he didn’t get a tax refund this year like previous years. His solution: he is getting a $300k equity loan to increase his ‘IP loan’ and basically can spend on anything because it’s really his money. He is a highly educated professional with income over $400k.

    Another one of my favourite is when people take out an equity loan and assume they don’t have to pay interest on it because it’s coming from their own property value going up :D
     
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  8. Sanka

    Sanka Well-Known Member

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    Oh if there is no tax benefit or future borrowing capacity benefit then there is no point..
     
  9. Terry_w

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

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    Did you think changing the security would change deductibility?

    There is still a point even if doing so wouldn't change the amount of tax.
     
  10. Sanka

    Sanka Well-Known Member

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    So is what dabbler said correct or incorrect?
     
  11. Terry_w

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

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    Yes is funny - even though common sense would say it is not possible.

    Another one is borrow $50,000 to buy share some shell the shares, use the $50,000 to pay off the home loan and then contrinue to claim the interest on the first $50,000 even though the shares were sold.
     
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  12. standtall

    standtall Well-Known Member

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    Deliberately assigning interest expenses for your own PPOR to an IP to make them tax deductible is tax fraud assuming your broker and accountant let you pull it off in the first place.
     
  13. Terry_w

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

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    Interest deductibility is determined by the use to which the borrowed funds are put. there must be income for the loan to be deductible. If you sell a property you can no longer claim the interest on the loan used to buy that property (unless sold at a loss, in limited circumstance)s
     
  14. Sanka

    Sanka Well-Known Member

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    Hmm seems like better option is to then just sell 1 ip and pay down the ppor in full. One step backwards to go two step forwards :rolleyes:
     
  15. Terry_w

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

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    What would that achieve for you?
     
  16. Trainee

    Trainee Well-Known Member

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    Contribute to the wellbeing of the country by paying capital gains tax.
     
  17. Sanka

    Sanka Well-Known Member

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    Increasing borrowing capacity. Doesn't the ppor loan weigh that down?
     
  18. Sanka

    Sanka Well-Known Member

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    Haha yes.. probably won't do it..
     
  19. Terry_w

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

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    Yes it does but it would be costly to sell and buy a replacement property - you lose about 10%
     
  20. dabbler

    dabbler Well-Known Member

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    Well, TBH, depends on when bought, ATM (or at least 5 months ago) was a good time to be offloading and reducing debt.
     

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