PPOR to Investment property loan structure

Hi All,

Current Situation

1. Currently living in the property as PPOR "A" and owe mortgage of 343,000 IO loan with an offset account.This property will be turned into investment property.
Also got 100k of saving in my offsett account. I believe current minimal valuation of the property will be around 500k.

Property "A" is only my name as my wife is in low income.

2. Already put a 10% deposit for the land which will cost me $355k and will be settled early next year 2018. To build the house "B" which will be my future PPOR, construction cost will be around another $320k.Total cost be around $700k including Land tax, fees etc.Future PPOR B will be shared between me and my partner.


Future plan

Borrow 90% current property and deposit 20% for future residential build and extra money in property B PPOR offset account.


My question

1.I will be refinancing my property "A" (Current PPOR to future Inv prop) to tap cash from equity. Should I borrow up to 90% or 80% (No LMI) as it will turn to investment property with IO loan? (Expected Valuation 500k minimum)


2. What percentage deposit should I put for property B(Future PPOR) 10% or 20%?

3. Is it worth to have separate land loan and construction loan to reduce my deposit amount?
Reason: Tapping into land equity allow me to reduce deposit amount as house and land built will be completed by end of next year 2018 or early 2019 (Land release date Feb-March 2018).


Cheers

Sam

 

Get some specific tax and credit advice but



1) May be best to avoid LMI as it won’t be deductible.

2) 20% if you can

3) Doesn’t matter

Make sure you split the existing loan and not increase the $343,000 loan as other wise you will have a mixed purpose loan.

 

Taken advice from your forum: Tax Tip 33: Deductibility of LMI

On Point no.1 - I believed LMI will be deductible once you convert your PPOR to Investment property which get depreciated in 5 years? (i.e So If I rent out after 18 months my deduction will have three and half years deduction left)

 

Good point. Yes it could be deductible in this situation. But I think still best to avoid if you can.

 

Thanks Terry,

Could you please elaborate why I should avoid borrowing more than 80% not worth paying LMI?

Cheers Sam

 

LMI is basically a waste of money if you don't need to pay it.

It would be better to use the offset account money and borrow 80% for the new one because it will be an owner occupied. If you don't have enough then new split on the existing one up to 80%. If this is still not enough you need to consider LMI.