Switch PPR to IP loan

Hello property enthusiasts.

Thanks for any help you can give me, this one is for the brokers.

I've got my (house a) PPR loan , soon we intend to buy another PPR (house b) and make (house a) an investment.

My worry is about the loan, obviously it'll be changing from a PPR to an IP loan. Can someone tell me things I should know about this? Is it illegal not to switch the loan? I'm not worried about the extra interest repayments. I am worried however because my income dropped from $130,000 to $100,000 after I changed the amount of hours.

I'm worried they'll recalculate the servicing and there'll be a problem. Is that likely to be the case? I can manage the servicing because we manage well now, spend very little etc, but I find the bank have different ideas about how much I spend than the truth.

The new PPR will be a really cheap house and in my wife's name so the next loan is less of a concern, it's just that "house a" switch that has me a bit worried.

Ideas, thoughts?

Any help appreciated.

 

Is it with the same lender?

How much are repayments going up by for the existing property? You will also have rental income and the loan should be tax deductible (depending on the structure).

Some lenders have been changing the type of the loan once there is changes eg your address etc.

Banks are working with HEM living expenses as a bare minimum.

In terms of borrowing capacity, your existing loan will impact next one eg. due to the Loan term remaining. There's ways around managing this and future cashflow.

 

Hey PT, thanks.

No, the lender will likely change, the new "house b" will actually be in my wife's name completely. the "house a" is only in my name.

Repayments on "house a" are approx $2300 a month. Ta re tax, yep that is the plan. And thanks, I forgot I'll be able to get that boost in income, should rent for minimum $500 a week.

Yeah, I don't want to be shifty, not trying to get too smart re changing my address, just not sure if there is definite requirement. I'm sure somewhere in those 50 pages there will be a requirement, which is fair enough.

I live well below HEM which is good, but unrewarded by the banks.

Thanks again.

 

Based on your first post, it sounds like you need your income and rental income for borrowing capacity purposes.

I'm not sure what the significance of the ownership structure is in this instance?

 

It's not really a question about structure. It's a question about switching/servicing/complications in switching.

 

No.

But read your contract. You may be contractually bound to tell your lender if you start renting the property out. But this doesn't necessarily mean you should tell them.

 

@1MF
Most lenders have a security switch form to change IP to PPOR and vice versa

 

Terry, you silver tongued juggernaut, you've done it again. Thanks.

 

You could fix just prior to settling on your new PPOR.

 

I've just done a similar thing - moved out of the PPOR and got tenants in so it's now an IP. We are now living in a rental. I have not and do not intend to tell the bank of this change for obvious reasons.

I'm unsure how to go about changing my postal address in so far as not raising any red flags at the bank.I could use a PO box, but this would still be located in a very different suburb to where the IP is, and also comes with an ongoing fee.

Any suggestions? Is a bank actually likely to notice or react to a change of postal address?

 

There are reports of NAB suddenly questioning things when addresses change.

You could consider a postal redirection.

 

Hello I am new to this forum and need some help with my situation.

I have my PPR in which I currently reside. I have an offset account linked to the mortgage account but I have transferred a lot into my mortgage account and now the balance on the mortgage is $150.00. I have the withdraw facility.
I intend to purchase a new PPR and turn the existing one into an investment. In the current situation, the property will be positively geared, I could use my equity in the existing property for the new purchase and yes of course interest is not deductible because i will not buy an IP.

What if I withdraw the amount paid in advance and transfer the money back into the offset account rather than using my equity? If I withdraw lets say 300.000.00 then the mortgage repayments will start again( offset is still active as well the mortgage account). The property will still be positively geared as the rental income will exceed the mortgage repayments but will I be able to tax deduct anything ?( interest paid on the 300.000?

I don't know how to get around this, any expert thoughts would be much appreciated

 

Ouch. Unfortunately no, there is probably not a way around - you have technically paid down the loan. Any redraw is new borrowings, the purpose of which it sounds like will be for the purchase of your new PPoR. This is retrospective, so doesn't matter if you redraw money before or after the property becomes an IP. I'm not an expert, but refer to Terry's Tax Tip 19 where this topic is discussed in detail.

You won't be able to attribute tax deductible interest to the existing property from any redraw on the loan unless the money goes toward income-producing purposes (for example, improvements to the existing property). There may be ways around such as spousal sale if you are lucky enough to be in a situation where that could work for you.

If all your extra repayments had remained in the offset account you would have been fine to draw them out for any purpose and have all interest remain deductible once the existing property becomes an IP. It's an unfair and counter intuitive trap that I have also been burnt by, but not to the same extent!

 

yes I know , I was afraid that the bank is not doing the right calculations so I have transferred the funds into my mortgage account.
I read some of expert Terry strategies and because I am not in a hurry I was thinking to transfer the house which is jointly owned into my name only, live in it for another year (to avoid stamp duty in victoria) then sell 100% to my husband who will purchase it as an investment property and therefore it will be a negatively geared property( if the legislation will not change) and tax deductible.

The borrowed money paid to me will then be used to purchase our new PPR-

how does this sound?

I am so happy I found this forum. You guys are fantastic

 

You won't avoid duty in VIC.
Tax Tip 161: The new Duty on Spousal Transfers in VIC Tax Tip 161: The new Duty on Spousal Transfers in VIC

 

@Joanna here's an idea to run by your accountant...

You sell your share of the house to your partner at market value (or they sell their share to you). The purchaser takes a loan to pay the seller.

Those funds are then used to buy another home for the couple to live in. The loan was taken to purchase 50% of the property from the other person, so it should be deducible against the 100% owner's name.

Not a perfect solution, but better than nothing. Just make sure your accountant is okay with it first.

 

yes, i have just read that transfer between spouses is only exempt from duty if there is no consideration.... Well well, hard to get around with this . I still believe that rather than selling to someone else and pay real estate agent commission on sale by selling between ourselves we save this money. or simply rent this property out ( in which case I will still have to transfer in the name of the husband earning less) and use the equity but I will have no tax benefits in doing this..

 

yes, will consider it , thank you

 

I've financed a fair few clients who have done what Peter has suggested - so definitely worth speaking to the professionals in your team to see if this is possible for you.

This just highlights the importance of speaking to your broker before making significant decisions which can have unintended consequences thereafter.