Refinance from BankA to BankB-80% of extra equity going into an offset account!

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Pimobpi
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@pimobpi
Join Date: 2013
Post Count: 60
March 27, 2015 - 11:39 pm
Hi,
I know that there has been a lot of information regarding offset accounts & LOC. I can’t find the answer & would like to know if anyone can?
I was told today that I could refinance my investment Land loan from BankA to BankB and that 80% of the new released equity will be directly deposited into an offset account of that new Land loan.
I thought that the released equity was only able to be made available as a LOC and is not deposited as cash into an offset account. I must be incorrect. Can someone confirm the above?
eg: BankA current Land loan is: $300K.
If refinanced to BankB (which values the land higher) BankB Land loan will be $350k & that the $50k will be deposited into an offset account of the new refinanced Land loan.
Will releasing equity in this way get non-deductible debt mixed up with my tax-deductible debt?
Thanks.
- This topic was modified 9 years ago by Pimobpi. Reason: added
Terryw
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@terryw
Join Date: 2001
Post Count: 16,213
March 29, 2015 - 12:09 am
Yes you could borrow extra and have the cash deposited into an offset account.
But, better not to do this as you will run into tax problems. use a LOC instead.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
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Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Pimobpi
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@pimobpi
Join Date: 2013
Post Count: 60
March 29, 2015 - 12:20 pm
Thanks Terry, I will definitely take your advice.
I suspected that something didn’t ‘feel’ perfect about the scenario.
I would use that extra equity to help fund a construction loan (on the same block) so I have to get it right from the start.
Cheers & wishing even more wealth to you.
Pimobpi
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@pimobpi
Join Date: 2013
Post Count: 60
March 30, 2015 - 3:12 pm
Terry or anyone else in the know,
Funds taken from the LOC & used for investing would incur interest & usually at a slightly higher rate.
I understand that mixing money that’s coming in and the money coming out of the LOC is very unwise: such as depositing my income in the LOC and then using some of that money to buy groceries etc.
Is it correct to say that I pay back the LOC in part or in full, then only extract money from it again (in part or in full) for other investment purposes?
Thanks.
Terryw
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@terryw
Join Date: 2001
Post Count: 16,213
March 30, 2015 - 3:26 pm
Pimobpi wrote:
Is it correct to say that I pay back the LOC in part or in full, then only extract money from it again (in part or in full) for other investment purposes?
Thanks.
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This sentance is unclear.
If you have a LOC with a limit of $100,000 but a balance of $0 and you go and buy a golden potato peeler for $1000 the balance is ow $1000 and this is a private expense. No interest deductible.
But if you go and deposit $1000 into the LOC you will be paying the loan down to $0 again, so if you borrowed $50,000 for a deposit then the interest would generally be fully deductible as there is no mixing.
But if you borrowed $50,000 before paying pack the $1000 it would be a mixed loan and the deductible interest would be 50000/51000 x100 = aboout 98%
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email Me
Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Pimobpi
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@pimobpi
Join Date: 2013
Post Count: 60
March 30, 2015 - 4:42 pm
The ‘golden potato peeler’ example is a classic :).
Although my question was unclear, you have answered it well.
Take care.
Jamie Moore
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@jamie-m
Join Date: 2010
Post Count: 5,069
March 30, 2015 - 8:54 pm
Hiya
Is that $50k being used for IP purposes down the track? If so – simple solution is to put the $50k back into the loan and redraw for future use when needed (just don’t redraw for non deductible purposes like trips to disney land).
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
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Mortgage Broker assisting clients Australia wide Email: [email protected]
Pimobpi
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@pimobpi
Join Date: 2013
Post Count: 60
March 31, 2015 - 8:29 pm
Hey Jamie,
OK, so trips to Disney-Land are not deductible, I’ll book Hawaii instead. :P
Thanks for adding extra input – clever.
The 50K will help fund a small portion of my intended development project.
I was not originally looking to extract equity – I was chasing a lender that offered residential loans for development projects greater than 2 dwellings on the same plot. It so happens that I can release some equity from my plot & I was looking at the best way of doing that.
I originally thought that equity could only be released as a LOC setup until I was offered my equity as a deposit into my offset account.
I now understand that the purpose of a loan and that the intention of a loan are 2 very different things. I’ve simply gone for the LOC (as Terry has suggested) & will use the funds for nothing else but for development purposes.
BTW, Terry is a gun!
Cheers Jamie – I’d like to add that many forum members (including myself) are learning tonnes from your entries alone. Can you download all of your knowledge to a USB stick? Future industry: Brain Income streaming *grin* Keep well.