Switch mortgage ratio on principle to investment

Hi all
Hoping for some advice please!
I have an investment property that is mortgaged to full value 625k when I bought it over a year ago and my home which has about a 150k mortgage with value of
@ 550k. I would like to move into my investment property and rent out my home.
My question is can I adjust the mortgages so that the one I will be renting out is mortgaged to the maximum and use that to pay down one I’ll be moving into??
Any advice greatly appreciated, spoke with bank and they weren’t much help

 

Yes you can, but it would be a worse tax outcome.

Why do you want to do this?

 

Thank you for your reply Terry
In the new scenario if I was to adjust the mortgages
Investment would have mortgage of @ 500k
Which would mean my ppor mortgage would be reduced to @ 300k
Which means the investment property would have a higher mortgage that is being paid by renters?
I need to move into the investment property due to family
Not sure if I’m explaining myself properly?

 

What you're trying to do is change the security against the investment loan in the hope that when you move into the IP, the loan will still be tax deductible because the security property (your old home), is now an investment property.

Sorry, but that's not how it works.

Tax deductability is generally based on the purpose of the loan, not the security property. The purpose of this $500k loan was to buy a particular property, therefore tax deductibility of that loan is aligned with what you're using that property. Even if you change the security for the loan, it won't be tax deductible when you move into that property because it's original purpose has not changed.

If I understand everything you've said, the $150k loan on your current PPOR would then become tax deductible when it's rented.


There is a small win in this though. The $500k loan is probably classified as an investment loan. When you move into that property, contact your broker or lender, tell them you now live in that property and ask them to arrange to have the loan reclassified as an owner occupier loan. That will probably give you a reasonable rate reduction. It's possible that this might cover most of the difference from loss of the tax benefits.

 

It won't change the deductibility of interest

 

I was in simple terms wanting to reduce what I owe on the mortgage of the property I’ll be moving into - currently the investment one
So that I can pay off my ppor quickly. Is there anyway I can remortgage current ppor( soon to be investment) to pay down the other one
Also I believe that the one I’ll be renting out that owes $150k will be getting approx $520 week rent with current repayment of $180 week
I really appreciate any advice
Thank you

 

It is the use of borrowed funds that determines deductibility.
The mortgage is irrelevant, what you are trying to do is to shift a loan so it is higher on the investment property. This won't change deductions because the security for the loan is not what counts, it is the use to which the borrowed funds count.

See some strategies here:
Strategy: 11 Strategies for when you move out of the PPOR and keep it Strategy: 11 Strategies for when you move out of the PPOR and keep it

 

My main goal is not tax deductions but owing leas mortgage on ppor. So I suppose the question is will the bank allow me to “increase mortgage on current ppor and use those fund to pay down mortgage on current investment regardless of tax deductions etc

 

yes they would. this is just a substitution of security.

Why do you want to own loss on the ppor?

 

I want to pay off my ppor so I own it no mortgage.
I don’t see any benefit of having a large mortgage on my ppor but maybe I’m missing something?

 

That’s pretty much it! Having the financial security of no mortgage on ppor.
Reading through comments again though it appears it makes no difference which house has higher mortgage tax deduction wise as the rent excess would be put to the ppor?

 

If you just wish to release a property as security without changing the amount of deductions that can be possible

But really this doesn't give much security.

 

Thank you all for your comments
Has given me lots of great info to think about

 

Am my high school principal once said, stand by your principles.

So what's your principal principle, to erase debt principal or to be principled about making more money?