Need to refinance and extract cash for business - as PPOR or IP?

Hello,

Our PPOR fixed mortgage is about to expire in March. We have the opportunity to rent it and live with our son for a while which might make it an IP or try to get the finance as a PPOR.

Current mortgage is $600K and val should be $800+K. Need to get $100K cash in hand.

I heard that IP finance is harder nowadays.

Anyway any thoughts welcome on best/fastest path to that $100K as there is a great opportunity for our business.

(Note: I am not necessarily looking for the cheapest loan. Also if there are any business loan type people here then by all means give business loan advice.)

 

Split loan while it is a ppor so you get the best rate. Use a Loc if you will be drawing down periodically.

Enter loan agreement with company and pay money over. If sole trader no loan agreement needed.

 

If the val is @ $800k, you'll be in LMI territory with $100k cash out so the best way forward will be to val shop to get the very best valuation you can. If you want cash out in LMI territory, they'll want proof of what the funds are for and it's unlikely most lenders will be happy with business use.

If you have a good broker, they should be able to order some valuations for you and it shouldn't cost you anything.

 

If Lmi will be incurred you should seek advice on whether it will be deductible and if so in part or in full.

 

Thanks Terry_w and Jess.

Terry_w said...
Split loan while it is a ppor so you get the best rate.
Enter loan agreement with company and pay money over.

I don't understand "Split loan...".
Also, "loan agreement with company".

Can you please expand on that.

Thank you.

 

Splitting the loan is just making sure that the new funds are in a separate loan account than your existing PPOR loan. Lumping all the borrowed funds in together makes apportioning the interest for tax purposes a nightmare and can result in the interest not being deductible.

Which lender are you with currently?

 

Yes as Jessi said you need to keep separate loans for business and private use.

If younwont be the ultimate user ofnthe borrowed funds you will need to enter an agreement with the borrower so that they can claim the interest.

You have just mentioned business so i am unsure how younare structured.

 

With Westpac at the moment and the business is a company.

But how does one 'split' 1 loan? I mean what does the lender do? Is it up to the lender/me?

And especially in the context of as Jess said "If you want cash out in LMI territory, they'll want proof of what the funds are for and it's unlikely most lenders will be happy with business use." it seems I cannot tell the lender to put it into another account in order for the loan to not complicate tax issues for me.

 

There is a balancing act with use of funds too - some lenders will want to know what it is for and will not want to lend for business use, others will not ask nor care. You'll want a broker who knows the ins and outs of business lending to look at this to ensure you don't have any refinance application accidently tanked.

As per loan splits - its just about having a new separate loan. For example:

Existing loan: 600k
New business loan: 100k

They are separate loans, with separate repayments and not joined. This is important for tax and accounting. The broker sets this up for you.

 

Thank you all very much.
So far the discussion has seemingly been about the 'technical side' of things.
But what about the strategy of PPOR vs IP.
You see, if IP, then mth rent in = $2500 net and mrgt mth pay = $4000 which to me seems the easier path, for approval, to take.

 

If you can service the extra $100k without the rental income, keeping it as your PPOR is better as you'll get a more favourable rate. IP rates are usually about 0.3% higher, more or less.

 

Also worth noting if you are going to rent it out, be aware of CGT consequences. You may be eligible for the 6 year rule (CGT exempt) if you stay with your son. Just something to keep in mind.