Release equity from PPOR to buy IP?

Discussion in 'Investment Strategy' started by LoremIpsum, 3rd Apr, 2019.

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  1. LoremIpsum

    LoremIpsum Active Member

    Joined:
    5th Jan, 2019
    Posts:
    42
    Location:
    Darwin
    Hi everyone.

    In 5.5 years, my PPOR will officially be completely paid off. (I’m hoping I can do this earlier, in say 4 to 4.5 years.) Its current market value is around $250K (dropped around $100K in downturn.)

    Planning ahead, I’d like to release some equity when the debt is clear to purchase a small IP in Sydney, to take advantage of prices I’m hoping will be still be low at that time. I’m also saving madly to build up a deposit.

    So what I’m wondering is how equity release works. Do I “refinance” the PPOR loan once it’s been paid off, and take out a line of credit that also accommodates the new IP?

    Would interest paid on the IP loan still be tax deductible given that I’m using equity from my PPOR?

    Also... I keep seeing the term “loan splits” and “debt recycling” come up here. What do these mean?

    If anyone can help me out with some insights that would be great. Many thanks!

    (Please note: I currently have an existing IP, with LVR sitting at around 100%, so I have no room to move there. However selling it is not out of the question.)
     
  2. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

    Joined:
    18th Jun, 2015
    Posts:
    41,672
    Location:
    Australia wide
    Don't pay off the loan or you will end up paying a higher interest rate. Debt recycle.