Hi,
I am having 1 Investment property and I would like to take the equity to buy a principal residence.
The market value of the investment property is 550K and the loan amount due is 425K. Can I draw equity from the property (say by increasing the loan amount from 425K to 500K) and use 75K as deposit to buy owner occupied residence? If yes, will the tax deductible loan amount be 500 ?
Thanks,
Hi BB,
Welcome to the forum.
Drawing equity of $75k will take the LVR up to 91%, so you will then have to pay LMI for that as well. The ATO will look at what the purpose of the loan is for – being purchase of PPOR it would make the $75k non tax deductible. If you do go ahead with this ensure that they are seperate loans so not to mix deductible and non deductible loans together. Also contact a decent broker to ensure the PPOR and investment property dont get cross collaterised.
Regards
Gibbo
probably difficult and costly to borrow that high and the extra will not bedeductible
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
BB2012 wrote:Hi,I am having 1 Investment property and I would like to take the equity to buy a principal residence.
The market value of the investment property is 550K and the loan amount due is 425K. Can I draw equity from the property (say by increasing the loan amount from 425K to 500K) and use 75K as deposit to buy owner occupied residence? If yes, will the tax deductible loan amount be 500 ?
Thanks,
Hi there
Depending on the lender, a cash-out up to 90% might be possible which will give you access to about $70k.
You'll need to set the $70k cash-out up as second stand alone loan. The original $425k will be deductible, the $70k for the PPOR won't be.
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
gibbo1 wrote:Hi BB, Welcome to the forum. Drawing equity of $75k will take the LVR up to 91%, so you will then have to pay LMI for that as well. The ATO will look at what the purpose of the loan is for – being purchase of PPOR it would make the $75k non tax deductible. If you do go ahead with this ensure that they are seperate loans so not to mix deductible and non deductible loans together. Also contact a decent broker to ensure the PPOR and investment property dont get cross collaterised. Regards GibboHi there,
Thanks for the reponse. Its clear now in regard to the tax deductible part. I have paid LMI when I took the loan for my Investment property since the LVR was 90% and I think I dont need to pay much if I top it up to 90% of the present value.I am not clear about the issue if the bank cross collaterise the new loan with the investment loan. Can you please explain a bit more?. Thanks for the help.
BB2012
BB2012 wrote:I am not clear about the issue if the bank cross collaterise the new loan with the investment loan. Can you please explain a bit more?. Thanks for the help.BB2012
Hiya
It's when the bank takes your PPOR as security for your IP – it's in the banks best interest to do this and not yours. It can be avoided but they won't tell you how.
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
BB2012 wrote:I am not clear about the issue if the bank cross collaterise the new loan with the investment loan. Can you please explain a bit more?. Thanks for the help.BB2012
Hi,
When they cross collaterise your loan they will give you 1 loan for 100% but secure it against two properties. This can be avoided by having two seperate loans – 1 secured against PPOR and the other against IP.
When a bank cross collaterises a property it will tie you up with that lender for future borrowings. If in the future you wish to sell your PPOR you will need to pay for a valuation on both properties. If you fail to make repayments on your investment property the bank can choose which property they sell.
Banks love cross collaterising loans and when questioned about it will tell you its the best way and if someone says that cross collaterising is bad they will then tell you the way they have set it up itsn;t cross collat. It gives them more security and locks you in as a customer.
Regards
Gibbo
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