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Using equity within IP for 1st PPOR

Discussion in 'Property Finance' started by Bruce36, 28th Sep, 2016.

  1. Bruce36

    Bruce36 New Member

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    Hi all,

    I would love some advice on my following scenario, any recommendations for brokers/accountants that are Melbourne based that are available for a phone or face to face chat would also be welcomed!

    In short my current situation is:
    • Purchased IP @ 80% LVR 3 yrs ago. Had this property re-valued a month ago, the bank believes it has appreciated by $70k and therefore has noted i am able to utilise $56k of this toward another purchase/deposit.
    • I have just purchased a second property, however in this instance its a PPOR.
    I have sufficient cash within the offset account of my IP to cover the 20% deposit + Stamp Duty of the newly purchased PPOR, however, should I still use the equity within that PPOR toward the deposit? Friends have noted this is a good idea as it will enable me to maintain more 'liquid cash'.

    Also, I would like to confirm, if i did go down this path, the extra interest that i will be paying toward my IP loan will not be tax deductable as i used that equity release toward a PPOR and not an IP? Therefore at the end of every FY I will be separating the interest paid on that loan (is this complex?)

    Finally, If i one day down the track decided to convert this PPOR into an IP, would the afforementioned extra interest repayments be tax deductible? Or will i lose that ability?

    Apologies if this came across somewhat convoluted.

    Cheers

    Bruce
     
  2. Jamie Moore

    Jamie Moore MORTGAGE BROKER - AUSTRALIA WIDE Business Member

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    Keeping some cash isn't a bad idea.

    If you do release equity in your IP just makes sure the release is set up as a second loan split (rather than just an increase to the existing loan).

    The equity release against the IP wouldn't be deductible as it's being used for a PPOR.

    If you rented out that PPOR in the future - it would be.

    Cheers

    Jamie
     
  3. Mumbai

    Mumbai Well-Known Member

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    Welcome to the forum Bruce (seeing this is your first post)
    Is there a reason why you want to go 20% on the PPOR? If you plan to do more investments (and/or convert the PPOR to IP) in the future, I would not pay 20% deposit to start with. You might end up paying some LMI, but can be decreased if you stick to 88% lend.
    In this way you still save a bit of liquid cash without taking out equity from your IP to pay for PPOR.
    You can later use that equity for your next investment :)

    There are quite a few brokers on the forum who can help you out. I will let them reply to this thread.
     
  4. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    It is a good idea to do this for a couple of reasons - firstly, if the PPOR ever turns into an IP, the whole lot will be deductible. Second, it keeps your cash free for emergencies.
    The equity loan would not be deductible, however you won't be paying interest on that portion anyways, as you'd put the cash you'd have used in the offset account so the interest payment should be exactly the same.
    The equity loan part would then be deductible, and the cash in the offset can then be transferred into your new PPOR offset to reduce the non-deductible debt. This is a way better outcome if the PPOR you're currently buying will not be home for long.
     
  5. Simon Moore

    Simon Moore Mortgage Broker - Melbourne Business Member

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    I think you're on the right path, all I would add is..

    You would set this up in a separate loan split, no need to split up the interest at the end of the year because you would have two loan statements.
     
  6. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    I would borrow 105% for the PPOR purchase and not use any cash (if you can avoid LMI).
     
  7. Bruce36

    Bruce36 New Member

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    Terry thanks for your advice.

    Speaking to my banker he will enable me to go up to 80% LVR on my existing IP for the equity release, how do i go about requesting 105%? Could you please elaborate on this
     
  8. Simon Moore

    Simon Moore Mortgage Broker - Melbourne Business Member

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    You borrow 80% against the new property, and then borrow the lower of 1. equity available in the old property or 2. 20% + costs of the new property.

    Hope that makes sense mate.
     
  9. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    As simo
    As Simon says you just borrow separately against 2 properties. But without crossing securities.
     
  10. Tranquilo

    Tranquilo Well-Known Member Premium Member

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    Thats the problem. Speak to a broker here on the forum. Bank will set you up thats favors the bank.
     
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  11. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    Don't speak to your banker about your loan structure - I can almost guarantee they'll cross the securities and have zero knowledge about the tax implications of what they're setting up. Speak to a broker from here - that way you know it's all correct.
     
  12. Jamie Moore

    Jamie Moore MORTGAGE BROKER - AUSTRALIA WIDE Business Member

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    Careful dealing with bankers - some are awesome (there are great ones on this form) and some are terrible. Which admittedly is the same with brokers.

    Release 25% against an existing property -and borrow 80% against the new.

    Cheers

    Jamie
     
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