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substitute security partial loan amount

Discussion in 'Property Finance' started by user355241, 28th Sep, 2016.

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  1. user355241

    user355241 Member

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    just wondering

    house 1 - 0 debt, value 440
    house 2 - 625 debt, value 800

    is it possible to execute the portable loan concept with a big4 bank but move say 385k of house2 debt to house1 debt?

    taking adv of the substitute/portable concept.
    i noted that cba state:
    • If an existing loan is to be transferred to another security, and that security is worth less than the existing security, the security margin appropriate for the product must be maintained.

    thanks
     
  2. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    Yes should be. You'll have to split the loan first. Which lender?
    And why do you want to do this?
     
  3. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Yes it is possible - but why? You would either need to pay the loan down, cross collateralise or split the loan securing part against property A and part against property B
     
  4. user355241

    user355241 Member

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    house2 will become PPOR so wanting to reduce the debt and move it to House1,
    if youre saying its possible - im with cba.
    the ideal scenario will be

    house 1 - 385k debt ,value 450
    house2 - 240k debt, value 800

    house2 being ppor therefore favourable.

    the end scenario is to borrow to build on house2. am thinking if house2 looks like this:
    house2 - 240k debt, value 800, and i have a build of say 800k, it might work better

    is there a better way ?

    i will spk to cba, but pls can some1 explain what is reqd - ie split loan, fees etc.
    do i need to pay stamp duty?
     
  5. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    You need tax advice, but moving the loan will not make it deductible if it was originally used to buy property 2.

    Just a form to split, and then a discharge form. Valuations will need to be done but that's no issue. Should be straight forward.
     
  6. user355241

    user355241 Member

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    both are IPs at present.
     
  7. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Changing securities doesn't change deductibility of interest.
     
  8. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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  9. tobe

    tobe Well-Known Member

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    Still not sure why you would want to do this?
     
  10. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    @user355241 Yes - but if the full loan was originally used to purchase IP2, which you are moving into, changing the security will not make this debt deductible. It's the loan purpose that determines deductibility, not the security.
     
  11. user355241

    user355241 Member

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    essentially i want to build on house2 and this will become a ppor.
    if the loan / debt etc is split moved as follows

    house1 - 385k debt ,value 450
    house2 - 240k debt, value 800

    the scenario is to borrow to build on house2. am thinking if house2 looks like this:
    house2 - 240k debt, value 800, and i have a build of say 800k, it might work better as it will be ppor

    is there a better way or?
    just trying to determine best way to finance a ppor build, and have as much 'reduced' debt on house2 before i borrow to build on it
     
  12. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    There's better less complex ways to structure this - best chat to a broker who can sort it out for you.
     
  13. user355241

    user355241 Member

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    i am meeting with a broker next week ... but pls, keen to hear others thoughts so i can take some initial ideas from here to him
    thanks guys
     
  14. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    The $625,000 debt will not be deductible once the property stops being rented out. Splitting this loan and securing it part of it against house 1 will not change this. None of the interest will be deductible at all.

    Before you see a broker you might want to see a tax agent or a tax lawyer to discuss some strategies to maximise deductibles legitimately.
     
  15. user355241

    user355241 Member

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    yes i am planning to meet accountant on same day as broker.
    keen to hear any other insights re building ppor and financing this
     
  16. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    You used the loan to purchase a property. If that house is an investment the loan is deductible, if it becomes your PPOR the loan is no longer deductible. Substituting the security doesn't change what you borrowed the money for, which is what generally determines tax deductibility.

    I don't see obvious benefit in substituting the security here, but I do see a risk of contaminating the loan that is deductible. This may result in none of your loans being tax deductible.
     
  17. user355241

    user355241 Member

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    thats right. this is going to eventually become my ppor, so theres no way around it.

    reason for doing this and 'breaking it up' so to speak is to reduce the debt on the ppor before i borrow against it to build the ppor.

    are there better ways to approach this? keen to hear strategies approaches
     
  18. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    It doesn't matter what the debt is 'on' but what the borrowed money was used for.
     
  19. user355241

    user355241 Member

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    ^ i understand that, and understand your point - however, given the longterm goal is to move into the IP and make it a PPOR with a build on it, i cannot see any other way around it.
    any advice appreciated, and also a more sound approach to build is welcomed. thanks all.
     
  20. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Way around what? Are you asking how you can make the interest deductible?

    The interest is not deductible and cannot become deductible.

    To improve the deductibility situation you may want to consider:
    1. Debt recycling
    2. Sale to spouse who borrows to buy
    3. sale to a related entity