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redraw

Discussion in 'Property Finance' started by Elives, 19th Jun, 2015.

  1. Elives

    Elives Well-Known Member

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    ok so i was speaking to my broker last week who said that if say 300k IP 80% lend.

    that if you had an extra 50k cash you could store it in the loan and it would be safe in the sense that the bank wouldn't look at you if you then say 3-5 years later took it out even if prices had dropped say 20% because it was your original loan. no re val needed.

    but if the property had gone up 20% and u did not put 50k into the loan and were trying to get equity out (the capital gains) that of course the bank would have to re-val it.

    is this correct?
     
  2. No Probs

    No Probs Well-Known Member

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    I would probably store the money in an offset account rather then pay down the loan as it's easier to access but I'm sure one of the brokers will explain it better then I could.
     
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  3. Jamie Moore

    Jamie Moore MORTGAGE BROKER - AUSTRALIA WIDE Business Member

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    You could put $50k into the loan - and if the loan has a redraw facility, you could take those funds out.

    However - I agree with No Probs, best to place the money in a linked offset account instead. It provides the same result without the taxation implications that redraw can cause.

    Cheers

    Jamie
     
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  4. Elives

    Elives Well-Known Member

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    "that if you had an extra 50k cash you could store it in the loan and it would be safe in the sense that the bank wouldn't look at you if you then say 3-5 years later took it out even if prices had dropped say 20% because it was your original loan. no re val needed."

    i'm aware that an offset account is the best way to go. but if you cannot have a offset account (don't want to go into detail why) would your money be safe in the above scenario?
     
  5. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    The danger with 'storing' cash in the loan is that you are paying off the principal. When you redraw the money you are borrowing new money. This will create a mixed purpose loan. ie. one loan where the money has been used for 2 different things. This creates serious tax issues.

    If your lender doesn't offer an offset then, if the property is an investment property, move lenders. if the property is an owner occupied you may still want to move lenders, but you could create a separate split and pay that split off (careful it doesn't close the loan split) this way when you redraw the money you can avoid creating a mixed loan.
     
  6. Kael

    Kael Well-Known Member

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    +1 for the offset account. Use an offset account for my properties and they work great :)
     
  7. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    Firstly it's always a good idea to have an offset account somewhere in your lending strategy. The flexibility and ways of improving your tax options makes them very worthwhile, it's possibly worth reviewing your loans to accommodate an offset account.

    It is possible that the lender may deny you access to funds in redraw. Technically they have it within their power to do this, although I've never seen it implemented.


    If you're accessing equity based on the increased value of a property, the lender is going to need to confirm the increased value, so a new valuation would be required.
     
  8. Jamie Moore

    Jamie Moore MORTGAGE BROKER - AUSTRALIA WIDE Business Member

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    It should be fine. A Pete said - the bank could deny access to it but I personally have never seen this happen.

    Which lender is it with?
     
  9. Elives

    Elives Well-Known Member

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    when you talk about serious tax issues, i would only ever use the money i redraw for investment purposes as i'm aware if i used it for non deductible things it'd make a tax nightmare. or are you talking about other things?
     
  10. Coota9

    Coota9 Well-Known Member Premium Member

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    Elives,

    I have used a separate stand alone loan which I use for all my investment purchase costs and maintenance.

    This account has a re draw facility which allows me to re draw funds as required to use for deposits,rates etc for pure investment purposes only and is not linked to either my PPOR or has personal income going through it either.

    The advise I have been given from my accountant is my structure is fine.

    Please seek advise though on your personal circumstances

    Cheers
    Coota
     
  11. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Thats much better then. But you would still end up with a mixed purpose loan - part relating to property A and part to property B. Not much of an issue if both are deductible to the same person, but where there are spouses involved and properties being sold it would still be best to split the loans into separate portions. That way each proportion can clearly be segregated.
     
  12. Elives

    Elives Well-Known Member

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    a seperate stand alone loan :S what interest rate do you have to pay for this?

    i'm thinking about using this redraw for multiple ips as i most likely wont have a offset account. as in used to pay for other ip expenses. i don't have a spouse will only be me.
     
  13. Coota9

    Coota9 Well-Known Member Premium Member

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    Elives,

    4.24% I/O with ANZ Break Free package which allows multiple loan splits per package.
     
  14. Elives

    Elives Well-Known Member

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    i'm a bit new, so package as in you have multiple loans per the 1 home loan? so once u have say 50k equity in the ip / ppor you can the have a 50k loan on that property and do what you said above?
     
  15. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    Not necessarily. In a GFC type scenario some lenders have clauses that won't allow you to redraw.