Refinance PPOR to purchase IP

Hi Folks,

Getting much closer to finalising loan structure for new IP purchase, but just had a scenario I thought I would put to the forum:

About to receive proceeds from sale of another property, which will enable me to payout PPOR debt and be debt free. Plan is to then borrow 105% to purchase new IP. Structure will be LOC secured on PPOR for deposit, and regular term loan secured against the new IP.

However, broker has suggested simply pay down PPOR to 0 or maybe 1 dollar to keep open, and then just request new lender to refinance this to the new LOC as a more straight forward way to do this.

Also mentioned, there is the chance that the new lender may draw down the discharge fee (re the PPOR loan) on the new LOC.

Question:

Does this refinancing process "re-set" the loan purpose for tax deductions? And does the potential initial draw down, not been related to the new IP purchase, contaminate the new LOC?

Am I better of just paying off the PPOR, getting the title and starting afresh?

Cheers

 

Not sure what you mean exactly.

Why not just pay loan down and redraw? If used for investment the interest will be deductible

 

I'm refinancing to a more suitable loan product, and the new lender has a better deal. My existing PPOR loan has personal funds/savings sitting on the redraw also, so I wanted to have as clean a start as possible with the new IP loan structure I guess..

 

You don't really have personal funds sitting in redraw. What you would have done is paid the loan down with the possibility of reborrowing the extra portion. Sometimes people confuse themselves with phrasing.

I would probably avoid a LOC in most cases. If you do get a LOC make sure you convert it to a term loan once you use it.

 

It's quicker and probably marginally cheaper refinancing than discharging and getting the unencumbered title from the old bank and giving it to the new one. It also means you physically picking up the title from one bank and giving it to the new bank, whereas a refi means the banks solicitors sort that out between themselves.

Otherwise there's no difference to the two scenarios.