Join Australia's most dynamic and respected property investment community

Need to get my finance ready for first IP

Discussion in 'Property Finance' started by LucyCat, 20th Jan, 2016.

  1. LucyCat

    LucyCat Active Member

    Joined:
    5th Jan, 2016
    Posts:
    28
    Location:
    Adelaide
    Hi, everyone,

    I am new here. Sorry, I haven't introduced myself yet. I am a little bit shy and quiet, but will do it when the time comes.

    I am a newbie with low income.
    I bought a ppor (valued $250k) in SA 2.5 years ago.
    Loan amount: $160k, 30 years. Bankwest Double Deal Home Loan (discontinued)
    rate : P & I. 5.15% (was 4.97% after 2 years of discount rate, then they just increased my rate for no reason)
    No offset account.
    Exit fee : $500

    I actually have paid off all the loan, but I still keep the mortgage "alive".

    From what I have read, if I want to use the equity of my ppor for an IP, it's better to create another loan (with Bankwest ) , use the newly borrowed money to pay the deposit for IP for tax reasons.

    But I am very disappointed with Bankwest due to all the mentioned reasons ( hard to negotiate, loan products discontinued, rate increased.... ). so I really don't know what to do.

    Should I just go with Bankwest?

    Or should I withdraw all the overpaid fund (over $150k), pay the exit fee and refinance? Once the refinance is done, put that $150k into the new offset account then borrow against the equity ? I don't think the new lender will be happy.

    I still have a lot of stupid questions, but I think I should stop here.

    Thank you very much for reading. Any suggestions will be very appreciated.
     
  2. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

    Joined:
    18th Jun, 2015
    Posts:
    2,773
    Location:
    Perth WA
    Hi Lucy,

    If your loan is fully paid down to zero, you can redraw the funds and the interest will be fully deductible - there's no need to open a new loan. However, if BW are annoying (and they are - very much so!) it might be worth refinancing to a better lender that suits your circumstances.
     
    LucyCat likes this.
  3. D.T.

    D.T. Adelaide Property Manager Business Member

    Joined:
    13th Jun, 2015
    Posts:
    5,584
    Location:
    Adelaide, SA
    Hi Lucy

    Congratulations on paying your mortgage off, that's a worthwhile achievement in anyone's language.

    Most people I know avoid Bankwest like the plague! Since you're in Adelaide why don't you have a chat to @Corey Batt who is a broker who can set you on the right path not only for this IP but for many more to come?
     
    Leo2413, York and LucyCat like this.
  4. LucyCat

    LucyCat Active Member

    Joined:
    5th Jan, 2016
    Posts:
    28
    Location:
    Adelaide

    Hi, Jess...

    Thank you for replying so quickly.
    Ummmm...
    I don't quite understand this part.

    If I redraw ( same as withdraw? ) the funds ( say $50k ) from my ppor loan account, that means I will owe $50k on my ppor. Why interest on this $50k is tax deductible?

    Is it deductible because $50k is for IP? And also the original loan is fully paid off, so there is no interest/tax contamination issue?

    Thank you.
     
  5. D.T.

    D.T. Adelaide Property Manager Business Member

    Joined:
    13th Jun, 2015
    Posts:
    5,584
    Location:
    Adelaide, SA
    Its deductible because its the purpose of the money that counts, where it comes from does not.

    Contamination issue only if the funds are spent on both non deductible and deductible purposes.
     
    LucyCat likes this.
  6. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

    Joined:
    18th Jun, 2015
    Posts:
    2,773
    Location:
    Perth WA
    That's right - because the funds are used to buy an IP, it's deductible. It doesn't matter what the loan security is, in this case your PPOR. It's important to note though that if there was already $100k for eg, drawn from the loan for your PPOR it would cause a tax problem due to the loan having mixed purposes, so it's only okay because the loan is fully paid down.

    If there was something already owing you'd just need to split the loan first before redrawing.
     
    LucyCat likes this.
  7. LucyCat

    LucyCat Active Member

    Joined:
    5th Jan, 2016
    Posts:
    28
    Location:
    Adelaide
    Hi, D.T,

    Thank you very much for the suggestion.

    Before I contact him..there is something I need to know.

    Say... My friend's wife is a broker, who helped me with my ppor loan.
    If I apply for a new IP loan, will she know it ? Thanks.

    I feel bad to talk to other brokers as she helped me a lot with my first home.
     
  8. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

    Joined:
    14th Jun, 2015
    Posts:
    1,165
    Location:
    Gold Coast
    move on

    ta
    rolf
     
    Leo2413 and Taku Ekanayake like this.
  9. LucyCat

    LucyCat Active Member

    Joined:
    5th Jan, 2016
    Posts:
    28
    Location:
    Adelaide
    Thank you very much, everyone.

    I need a little bit time to digest.
    It's late now.
    Good night.
     
  10. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

    Joined:
    18th Jun, 2015
    Posts:
    8,979
    Location:
    Sydney
    Don't confuse the security for the loan with the use of the funds. Security doesn't generally change deductibility of interest, it is the use that counts.

    Tax Tip 22: Security for a loan does not determine Deductibility of Interest
     
    LucyCat likes this.
  11. York

    York Finance Broker Business Member

    Joined:
    24th Jun, 2015
    Posts:
    1,621
    Location:
    Sydney
    Lucy, I understand that you may feel you need to be loyal and that's a good thing. You feel like you need to stay with your friend's wife who helped you at a specific time when you needed help. But you need to think of yourself too and what your needs and aspirations are. It is clear you are a bit confused about this situation. Your current loan seems outdated. There are better products out there to suit your needs. Your circumstances have changed since you took out that loan with Bank West. I agree with @D.T. Contact @Corey Batt. He is an excellent broker and i am confident he can find a solution for you and give you clarity and confidence with your situation.
    I also was in a situation like yours where I felt that i needed to stay with my previous broker until I realised that I needed to do the best thing for myself which was to use the best team i could to get the best results.
     
  12. LucyCat

    LucyCat Active Member

    Joined:
    5th Jan, 2016
    Posts:
    28
    Location:
    Adelaide
    Thank you very much, Terry & York.

    I've been struggling with this loyality thing, possibly because of my cultural background. I definitely will contact Corey Batt.

    Now I understand the redraw will be fully tax deductible.
    But there is another concern, salary sacrifice (SS)

    As a not-for-profit organisation employee, I can SS some of my before tax income ( $500 fortnightly) into my PPOR loan. SS is non taxable and not allowed for investment loans.

    Although I have paid off my home loan (mainly with after tax income) I still SS into my loan account to maximize the benefit. I transfer $500 out just before my pay day to keep the balance zero. I won't transfer more than the before tax paid amount.


    If I redraw $50k, then I shouldn't SS into the same account, because it's for IP. Maybe I need to split the loan to avoid contamination.

    Original $0 balance loan A -- keep SS, take $500 out before pay day to maintain $0.
    New redraw $50k loan B -- pay with after tax income.

    Sorry, it's getting too complicated. I don't really know what I am talking about.

    Thank all of you very much again.
     
  13. Taku Ekanayake

    Taku Ekanayake Well-Known Member

    Joined:
    23rd Jun, 2015
    Posts:
    762
    Location:
    Sydney, Australia
    Lol ^^

    But in all seriousness, look out for Number 1 @LucyCat.
    There are great brokers on here, look no further than some of the respondents on this thread. I'd suggest contact 3. There is a big human element between broker and client, and unless you connect/get along with them, I don't think it'll be a sustainable relationship for the long-term.
     
    Leo2413, LucyCat and York like this.
  14. LucyCat

    LucyCat Active Member

    Joined:
    5th Jan, 2016
    Posts:
    28
    Location:
    Adelaide
    Thanks a lot.
    I'll move on.
    :)