Split Loan, extremely confused

Hi all,

It has been so informative reading through posts here and I have learnt a lot, particularly from the ''Tax tips'' posts but my poor brain is overloaded and I'm confused. I suspect my confusion relates to misunderstanding financial terminology and I apologise in advance for posting what is probably a common scenario. My situation:

- Wife and I are in our 30's with 2 young children.

-85k income (only my wife is working at the moment; I'm at home with the kids).

-Owe 266k on our home worth between 770k-800k. Mortgage with NAB currently on variable rate at 3.39%. Our minimum repayment is $1520 per month.

-Have 220k redraw available

-Own 39k shares outright outside of super, all LIC's and VAS.

-Expenses are $650 a week not including mortgage repayments. We rarely splurge on anything but necessities.


Up to this point we have focused on paying any extra from our modest income into paying the mortgage (with the exception of share purchases), but now feel we are being too financially conservative and hoping to buy an investment property.

Went to NAB who said basically 'take the 220k redraw if you wish but you can't borrow anything else, your income is too low'. Spoke to a broker who said we could perhaps borrow 150k elsewhere but my question relates to accessing redraw money for investment purposes and splitting the loan for tax deduction purposes.

We have redrawn money twice before with complete ignorance to possible issues in the future- once to buy shares and once for the deposit for our current home. At this point is it possible to split our loan to make the 220k redraw tax deductible or are we in a ''mixed purpose loan'' quagmire that can't be rectified?

Thanks everyone.

 

What will you do with this house when you upgrade?

 

Yes you could split the loan. And probably should if you plan to invest.

 

Thanks Trainee, I think I know where you are heading with this. If we upgrade in the future we will sell. Our area is almost completely owner occupied and our house and land is very high maintenance.

Cheers Terry and love reading all your posts.

Thanks Rolf. The NAB banker said similar and I said 'yeah a few years back your bank contacted us every few months trying to get us to buy an investment property. How about you reduce our interest rate so we have some hope of saving enough to buy in the future'. Got the rate cut albeit a small one so the meeting wasn't completely futile.

We had a bit of luck along the way with our 1st home that shot to the stars during the boom. No way we could have saved to our current position otherwise. Pretty dejected by our lack of borrowing capacity but very grateful for the dice that did roll our way.

 

I don't think the penny has dropped yet. Thought I had my head around everything but not quite it seems.

I got a 100k loan split principle and interest after speaking to banker. I stated that we wanted to buy up to 100k of shares over a period of time- not all at once but in 10k parcels.

What I have realised is that this will be a nightmare to calculate interest deductions with principle being payed down.

Comprehension skills aren't usually a problem for me but I still don't get it. At this point I am happy to pay for advice. Recommendations would be much appreciated as would the estimated cost of advice. Would like to speak face to face to someone in Melbourne. Is it best to speak to a tax accountant or financial planner? Would like to figure out the best structure for our loan that accommodates our current circumstances as well as the future when we have two incomes and increased borrowing capacity.

 

You can still claim the interest on the $100k if you use it to purchase shares in different parcels over different time periods. Even if PI it won't matter.

It will be a bit tricky if you were to sell some but not all of the shares as you would need to reduce the loan by the portion relating to those shares. but this could be worked out by use of a spreadsheet at that point.

 

Thanks Terry.

Every little moment of clarity is throwing up different questions however. The more I learn the more I realise what I don't know.

 

As Terry states, an excel spreadsheet will help & don’t mix the loan, ensure you repay the loan balance with proceeds of any sales.
Also your statement from the bank will tell you your interest portion at EOFY.
If for some reason it doesn’t, you can calculate by total repayments - principal reduction = interest paid.