Will this strategy free up cash?

I have IP1 which I may sell in the coming 12 months.
Ideally when selling I want the loan on IP1 to be as low as possible to free up cash.
I plan to move majority of the loan on IP1 to another security - IP2.

Scenario (figures approx):

IP1
Secures loan - split $50K + $250K
Value approx $500K

IP2
Secures loan split $300K + $100K
Value $750K

Loans on both properties are with the same bank.

I plan to move $200K from IP 1 to be secured by IP 2.

End result -
IP 1 = secures $50K + $50K (new split which remains after $200k changes securities)
IP 2 = secures loans $300K + $100K + $200K

If I later sell IP 1 for $500K and pay off the $50K + $50K debt, will this free up the extra cash from the sale?

Sale: $500K - $100K debt = $400K cash. (before paying selling costs and CGT)

OR will I also have to pay out the additional $200K that has just changed securities?

 

Its a strategy we use.
Shift security of the debt over to a property not being sold. You would have to split the loan and substitute security or apply for a 'cash out' new loan and pay down loan secured on the property about to be sold.

Note it won't affect CGT and the loan shifted over won't be deductible interest but you can debt recycle it into new investments.

 

Thanks!
Great to know that I don't have to repay the $200K that will change securities, AND that I'll have some cash to play with.
And I am assuming that the $200K loan portion is still deductible until IP1 is sold.

Next part of the plan:
When IP1 is sold plonk the extra funds in offset accounts against the $200K and others.
If I need funds for personal use, it is readily available.
If I need funds for investment, I deposit that extra cash into the $200K loan and others, and redraw for the new investment making those loan portions deductible again.

I have one hurdle to cross though with getting the bank home loan manager on board.
He offered up a different but similar plan for the security substitution.

His Plan:

IP1 - Move $50K + $250K loan to IP2
IP2 - Move $100K loan portion to IP1

End result:
IP1 - secures $100K (original loan from IP2)
IP2 - secures $300K of original loan + ($50K+$250K) original loan from IP1.

End result is basically the same in terms of $$$ but I figure that when IP1 is sold, I'll end up with $300K of non-deductible debt ($50K + $250K) instead of $200K.....

Anyone care to comment if I am making the right assumption there?

 

Any loan you move to be secured by IP1 would need to be paid out when this is sold and this would reduce non-deductible debt.

Why not just move loans up to 80% of value of IP2.

 

Thanks for the valuable input again.
Yes, I will stick with my original plan of moving as much of the IP1 loan across to IP2, aiming to maximise the loans secured by IP2 up to 80%.