Restructuring PPOR Home Loan to become future IP

Hi

I am seeking your advice as to how to best proceed with the following scenario.

When we bought our current house (PPOR), we paid a 20% deposit to avoid mortgage insurance, and the loan was principal and interest. Over the course of time, we paid a little of the principal off, and managed to get to a point where 100% of the principal was offset. The current scenario is as follows:

·         Purchase Price: $310,000
·         Purchase Date: 5/09/2007
·         Estimated Present Value: $340,000+
·         Initial Loan/Principal: $248,000 DR
·         Present Principal: $216,060.34 DR
·         Current Offset: $216,060.34 CR 

A couple of months ago, we switched the loan to interest only, to avoid paying any more of the principal off, as it has always been our intention to turn this house in to an investment property when we move out of it. 

We are looking to purchase both a new house for ourselves, and finance permitting, an additional investment property in the not too distant future. The advice I am seeking is regarding purchasing the new property to be future PPOR, and best structuring of our existing loan for the current PPOR which will be converted in to the investment property.

As I see it, we can pull the money out of the offset account and use that as a deposit on a new house for us to live in, no problem. However, that would still leave somewhere between 90k and 120k tied up in our current property (future investment property), that would be better placed against the mortgage of the house we were living in. 

ie. this money would be better placed offsetting interest we can’t claim on tax, rather than in an investment property where we can at least claim the interest component. 

My question is as follows: Short of selling the property, and buying another. Is there any way that you know of that I can restructure this loan, such that I can pull this money out of the loan, perhaps put it in the offset in the short term, and then at some near term future stage, put this money against our future residence (PPOR), and leave us owing the maximum amount possible on the “investment property” for taxation purposes?

Your time and advice is most appreciated. 

Peter

Only by selling the property to a Unit Trust or transfer your wives interest to you and borrowing accordingly.

Other than that that no it has been set up incorrectly in the first place and not a lot you can do about it know.
If you had taken 90-95% lvr and paid the LMI done the deal on interest only then Yes you could have claimed interest on the lot.

Cheers

Yours in Finance
Richard Taylor
Residential & Commercial Finance Broker.
Ph: 07 3720 1888
richard@tayloredfinancialsolutions.com.au.
Email me for your free Residex Property report Australia wide

Hi Richard

Thanks for your prompt reply. I'd contemplated the trust concept, but wasn't sure if that would fly, and also wasn't sure if it made long term financial sense. There seem to be a few pros and cons.

The suggestion of my wife transferring her interest to me, or visa versa, is a good one, that I had not fully contemplated.

I'll have a hunt around the net, but if you know off hand, do you know what sort of costs this would incur? ie. would we then be up for Stamp Duty or "Transfer of Registration" fees etc? Obviously the bank would like to slug us for rearranging the loan, but from a government perspective do you know if these things apply? (the house is in SA if that makes any difference)

Thanks once again for your prompt and professional advice.

Kind Regards
 
Peter
 

Wives?? You mean he has more than 1?

What you can do is to talk to a sexy accountant about setting up a LOC on your place and borrowing from the LOC to fund the interest and other costs on the investment. This will free up cash which you can use to pay down the new PPOR loan. You need to be careful about structuring this though.

Terryw
Finance Broker

I dont understand why you cant use the cash in you offset account towards your new ppor  ??? I was planning on doing the same thing in a few years

censor me and bar your kids from the lessons I learned - makaveli
I`ll make him an offer he can`t refuse - Vito Corleone

You can.

But what if it is not enough, and you have equity in the old PPOR. This will mean you are paying more interest on the PPOR with this not being deductible. So you need a way to squeeze out some equity from the old PPOR without compromising tax deductibility of it.

Terryw
Finance Broker

Hi All, thanks for your comments.

zac_moose - Pulling the money out of the offset and putting it on the new PPOR is fine, and that's not the problem here. The problem is more about the 120k odd of equity then still left in the current PPOR (soon to be IP). It seems a shame to have it sitting there saving me interest where I will be able to claim interest as a tax deduction (once it becomes IP), and at the same time not have it working towards lowering the interest on my new PPOR mortgage. - It's my own still fault. I thought I was being clever when setting it all up, but really I should have worn the pain of a few years of LMI for the long term gain of additional negative gearing.

Does anyone know what the deal is for transferring a title from a husband and wife to just the husband or just the wife? Assuming no marriage break down, I assume you're up for all the same government fees/duties? (ie. stamp duty & transfer of registration etc). We live in SA, not sure if that makes any difference.

in some states there is no stamp duty on transfers between spouses - usually, but not always it is exempt only for the main residence. You should look up the legilsation in your state - probably its the Duty Act or Stamp Duty Act.

Terryw
Finance Broker

Thanks Terryw

I will have a look around. I had a look last night, and I found something about getting a stamp duty exemption if the marriage had "failed", but nothing to do with transferring between spouses in "happier times". If I have no joy, I'll ask my conveyancer, one would hope they know these sorts of things.

Appreciate your advice.

Peter