Tax Tip 36: Consolidating Loans for investment properties

Not Terry, but that is what I would do minus re drawing to offset.

 

Is there any point of keeping the loans split ?

So it is always an 80/25 or whatever, but now is on same security it is related too, otherwise it may get hard to work out what happened after time passes with multiple properties.

 

If I don't redraw back into the offsets, will the bank close the loans on me because it is at $0 balance?

 

That was going to be my next question. Would I then consolidate split 3 & 4 to become $65k debt, then have an offset attached to this new split with the funds parked in it ready for use?

 

If you pay loan 100% it will close it with most lenders I know, call your lender and ask how much needs to be drawn to keep loan open.

Do not pay 100% of drawn amount.

 

Yeah I've read in other threads to pay down to $1 but obviously best to check with lender.

Next question is, if say you pay down to $1 and draw back out to use (again, for investment purposes), doesn't this make the loan mixed?
Because there is still $1 that was originally used for non-investment purpose?

 

My question is different.

Some lenders do splits etc no charge, some charge, you could wait till you know what amount you will be using for next buy before you make changes.

Ask your lender how long they take to do this sort of change.

 

Yes I see what you are saying. For the purpose of this loan, I'm with CBA so they do not charge for additional splits.
I know NAB used to charge $10/m if you are not under the Homeside (from memory, that's what it's called) package.

 

Yeah check on the dollar, some may be different, i would think 100 or so.

Re mixing, I do not think it will matter as amount is so low. You could always adjust by injecting the dollar or 100 once drawn fully so it is 100% accurate, personally i am not thinking anyone would worry.

If you create a new split, your lender may allow it to be fully paid down initially, ask them.

 

Yeah will call CBA after the weekend and report my findings.
Thanks for the help

 

Not that easy because you run the risk of breaking the connection between the borrowings and the investing.

See tax tip 1

 

Techncially you would be mixing a mixed loan further if you paid a $1 into it.

But the % will be very small.

Best not to do this.

 

If the 2 splits are used for the same purpose you may as well joint them up into 1 just so that you have 1 less loan to worry about.

 

Ok, after reading most of Tax Tip 1 thread, it seems there is no way to pay down a loan 100% and then redrawing to use for investment purposes. By leaving $1-100 in the loan, it will stay mixed (until paid off) but 99.5% of the interest incurred will be tax deductible moving forward.
Is this correct?

 

I'm assuming it's better to combine both splits prior to paying down?
e.g. Split 3(30k) + Split 4(35k) = Split X(65k) with attached offset.
Pay this down, leaving $100 owed. Then redraw to offset and use for IP2.
99.5% of interest incurred on Split X will be tax deductible against IP2 moving forward.

 

Yep

 

Terry can give the full tech write up.....


My thinking is, if it was fully drawn for IP buy, and it had a grand drawn before paying costs/fully drawing for IP, I guess paying 1k back into loan means your now only claiming what your supposed to, but I do not think ATO even worries about that, unless you had 50 loans you purposely did this too maybe, but at the end of the day you would only be claiming the correct amount of interest if you did it like that.

If you can get a fresh start and lender allows full availability if fully paid down because you explained what your doing, then that will allow you to sleep at night

I have found when you re finance no one get's it right most of the time, especially from the majors & is never down to the dollar or cents. If it needed to be that exact re finance would not be possible

 

I guess @Terry_w you'd want to really do the sums on this now with the rate differential between OO/INV and P&I/IO. Consolidation can make bookkeeping simpler but if you've changed a PPOR to an INV and 'forgotten' to tell the bank about it you could be then be giving the bank more money than you need to.

 

Yes things have changed since I started the thread so you need to consider rates more carefully now

 

What kind of problems are you referring to?

IP1 split 1 200k (used for IP1 original purchase)
IP1 split 2 125k (equity withdrawn for IP2 deposit)
IP2 400k

If IP2 increases in value later, instead of taking out equity from IP2 to pay back to IP1 and then using a loan from IP1 for a new purchase, what kind of problems exactly are there with just take it out of IP2 to be used as a deposit for the new IP?