When you can't refinance - would this work?

I suspect that in the current market I would not be able to refinance.

Would this work, assuming:
PPOR paid off (100% offset - a few splits) 450k available
IP - balance 495k fixed IO - suspect can't swap to PI with offset at the end of the fixed period.

Can I pay out all PPOR loan splits and redraw/re-borrow, therefore, changing the purpose of the loan, and use that cash to pay out the IP loan and thus maintain deductibility of interest? Basically an internal refinance? (I would need to add the extra 50k from savings).

This IP would be our second home and thus we wish to be able to offset/ reduce the loan as quickly as we can. Cant do that if on a high IR with no offset and don't want money sitting in re-draw.

 

Generally, your IP loan will change to P&I by default - it's not a new assessment at this point.

But you should be able to do what you suggest, also - just bear in mind you'll lose access to all your cash if you close the IP loan.

Are you going to sell your current PPOR? If not, you could consider just using the offset funds to pay off the current IP, and that way your current PPOR debt will be deductible should it later turn into an IP.

It might pay to go see a broker to confirm you're definitely unable to refinance.

 

You're borrowing money against property A, to pay off the loan against property B. Therefore the purpose of the loan on property A is aligned to the deductible nature of property B.

When you move into property B, it's now your PPOR which is non-deductible in nature, therefore the loan against property A would probably not be deductible.


What you could do is put all your savings into offset accounts against property A. When you move into property B, you can move those savings to offset the loans against property B. In this scenario you're moving your savings around from one offset account to another, rather than borrowing money from property A to pay off property B.

Additionally when you move into the IP, you can simply ask the bank to reclassify the loan as an owner occupier loan, rather than an investment loan. This doesn't require a refinance, simply a bill or similar to demonstrate that you now live in the property.

 

Good point Jess - this would be our second home for approx 9 mths - which I know won't be deductible. After that time it will be an IP again. (Probably sounds weird but it is all legit - we are making a lifestyle change and have 2 IPS in the area - one's lease comes up before the other - hence we will occupy that house until the other is available - no issues with other IP as it will have the offset)

Yes the loan will revert to PI - but it is a no frills product that does not have an offset. Its ME bank - if that helps. I believe PI with offset is a different product so would require a new application.

 

It is still possible with most lenders to do a product switch with out a full assessment if not increasing debt or extending IO period.

 

Switching to P&I from I/O does not require a new application.

 

Beware of unlicensed tax advice

 

Is this post relevant to what you want to do?
Strategy: Borrow Against the Main Residence for an Investment Loan (Shuffling Loans Around) Strategy: Borrow Against the Main Residence for an Investment Loan

 

no - but switching to the product with the offset does. Or that is what I was led to believe - hence we just fixed for another period. I probably need to check that I actually have the info correct - I hope I am wrong.

 

Thanks for the link Terry - I will have a read.

 

I'm not as familiar with ME's policies as I am with most others, but generally speaking, switching from say a basic loan to an offset product doesn't require credit assessment, as long as you're not changing the amount or the term of the loan.