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Should I change my PPOR to IO?

Discussion in 'Accounting & Tax' started by JMica, 23rd Jun, 2015.

  1. JMica

    JMica Well-Known Member

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    I took out an extra large loan on my PPOR so that I can have a higher amount in the offset account (that I can I use to invest if I want), but for some silly reason I set the loan up on P + I...

    I want to keep the loan high just incase it ever turns into an IP

    Should I bother changing it? The reason I ask is if I change it I have to pay a fee... But let's say I leave it on IO & by the time it becomes a IP the loan is lower, I can then refinance that loan to a higher LVR & use that money to purchase say another IP, and then the whole loan amount will be tax deductible..? Am I right in my thinking?

    Does that make sense? Appreciate your thoughts :)

    o_O
     
  2. Shahin_Afarin

    Shahin_Afarin Residential and Commercial Broker

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    Definitely change it to IO if you are planning to convert it into an IP.

    Re the fee - if its that big of a deal just raise it with them and see if they are willing to waive it.
     
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  3. JMica

    JMica Well-Known Member

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    I mean I'm not 100% what's happening in the future, but there's definitely a good probability..

    I've only been there for 7 months, I'm thinking of just biting the billet and doing it..

    But out of curiosity if I was to change to an IP & refinance to purchase an investment then that would still all be tax deductible right? so it's one of the same thing I guess :)
     
  4. Shahin_Afarin

    Shahin_Afarin Residential and Commercial Broker

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    Even if you don't convert it into an IP - you can still accumulate more funds in your offset to use as a deposit for the purchase of another property (I am assuming you are looking to grow you portfolio?).

    Re the equity release - this goes off the purpose. So if you do an equity release to purchase an investment property then the equity release portion only becomes tax deductible. Therefore don't mix/contaminate the loans - ensure that they are separate loan accounts.
     
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  5. JMica

    JMica Well-Known Member

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    Hmmm so If I have say a 450k loan on my PPOR and it becomes an IP, wouldn't that 450k become tax deductible? Then if I released more equity say to 550k, I'm assuming it will all be the tax deductible right?

    I'm assuming you're talking about contamination of the loan if I refinance whilst it's still my PPOR?
     
  6. Jamie Moore

    Jamie Moore MORTGAGE BROKER - AUSTRALIA WIDE Business Member

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  7. Shahin_Afarin

    Shahin_Afarin Residential and Commercial Broker

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    It depends - if you convert the PPOR into an IP then yes the $450k is tax deductible.

    Re the additional $100k - the tax deductibility of this portion of the loan is dependent on what it is used for. If you use it to purchase another PPOR then no its not tax deductible.
     
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  8. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    It depends. Lets assume you had originally borrowed $400K then drew down $50k to buy a car. In that case only $400K (or some other value depending on refinancing principles) would be deductible. The security used for the loan isnt the relevant factor and can lead to mistakes. Its how the $450K debt arose. If it is solely and 100% to acquire that property then no issue.
     
  9. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    If you have a non deductible loan and money in the offset account that you invest with the interest on your non deductible loan will increase and you will be paying more tax than you should on the investment.
     
  10. JMica

    JMica Well-Known Member

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    Thanks everyone great insights and good validation, appreciate it!