Refinance current PPOR and buy a bigger PPOR - in which sequence?

I'm completely new in this and hope the experts here are able to shed some lights

My partner and I have paid down 10% of the loan of our current property. Current property value have increased by $100k.

We would like to buy a 2nd property as PPOR using our offset (LVR 80%) and convert the current property into IP.

We are thinking to refinance our current property and put the $100k in the 2nd property offset.

We'd like fix the current property at OO rate, P&I (without offset, yearly package fee) so that when the place is rented out, the rate is lower than investment loan. Is this right?

This sounds like a stupid question but does the sequence of refinance & buy VS buy & refinance matter? Does it have any implications on borrowing, tax etc?

Both properties will be joint ownership. How do we structure the loan to benefit the both of us?

 

If you borrow another $100k and put it in the offset you will have tax problems - mixed purpose loan, contaminated loan etc. So don't do that. You could borrow the $100k but make it is a different split and the interest on this split wouldn't be deductible.

You can fix your loan before or after doing this, but best to seek advice from a broker first in case you end up needing or wanting to change lenders.

I would probably borrow as much as you can for the new property - 105% if you can, or at least 80% and then you can concentrate on paying it down, splitting and using owner occupied rate to shuffle the loan into the investment loan when or if the investment loan interest rate increases.

Seek tax and credit advice

 

As mentioned above - all good to borrow the extra $100k but set it up as second loan.

So it would look like this:

Current PPOR (soon to be IP)
Loan 1: Current loan
Loan 2: Equity release loan (to cover deposit on next property)

New PPOR
Loan 3: New PPOR loan (deposit to come from loan 2 above)

That should leave you with loan 1 being deductible - and loans 2 and 3 not deductible.

I'm not an accountant though so seek pro advice, etc.

Cheers

Jamie

 

Thanks Terry!

Do you mind to elaborate on this part? How to shuffle the loan?

"Concentrate on paying it down, splitting and using owner occupied rate to shuffle the loan into the investment loan when or if the investment loan interest rate increases"

 

Thanks Jamie! Are accountants meant to advise the way to structure loans? Or is this more coming from a mortgage broker? (I don't have a broker) I've met my accountant before posting on here and he didn't suggest anything like that. Sigh...i feel like my accountant is not helping : (

 

Accountants and lawyers can advise on loans from a tax angle, brokers can advise from a credit angle.

 

I think this one covers this
Strategy: Borrow Against the Main Residence for an Investment Loan (Shuffling Loans Around) Strategy: Borrow Against the Main Residence for an Investment Loan

 

Hiya

It's all pretty straight forward stuff for most brokers on here - I assume we all deal with these sort of structures daily. Having said that - I'd always recommend the client seeks tax advice from an accountant (because we can only provide credit advice - not tax advice).

Plenty of good accountants on here if you feel like your current is doing the job - I use Paul Gerrard personally. He's very good and posts on this forum.

Cheers

Jamie

 

Thanks Terry. I have been printing out and reading your tax tips. A lot to digest

 

Actually....if I buy the 2nd property first with Bank A and then refinance the current property with Bank B under fixed rate OO loan, will Bank B find out and not allow me to borrow fixed rate OO loan (can only have IP loan?)