Hi All
I was hoping to tap into the wealth of knowledge out there in regards to my loan structuring, as it is something I want to get right before investing further.
I currently have 2 properties. A house which is my PPOR and a Unit (under the NRAS scheme), which is nearing completion and will be rented in the very near future. The mortgages on these properties are currently separate and also with separate institutions.
My PPOR I have on Principal and Interest weekly repayments, whereas my IP I have on Interest only monthly repayments.
I intend on purchasing further IP's and also potentially changing my PPOR to a newer property and turning my current one into another rental property.
In essence, I have a couple of ideas, but I would like to know how each of you would structure your loans for the best results?
Cheers!
From what I have read on here the general information given is if you are going to turn your PPOR into an IP at some point then it should also be on IO loan with an offset account.
Other than that you'll need to wait for one of the mortgage brokers to answer your question.
Yes, change PPOR to IO and get a 100% offset to save interest in the meantime
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
Cheers guys!
I forgot to mention, although I am making Principal and Interest repayments on the PPOR, I do have an offset account attached which saves me a fair chunk of interest.
I did respond earlier but i don't know what happened to the post.
Definately look at interest only with 100% offset rather than principal & interest loan.
My question was is did you put down a deposit for the new investment property or create a sub-loan on your PPOR ?
Certainly sounds like the loan need a little bit of restructuring.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
As others have mentioned here, worthwhile changing your PPOR loan to interest only. Even though you already have an offset account saving you interest, changing to IO and putting that extra "principal" into the offset account has the effect of you still paying the same amount of interest as if it was P & I. The bonus will be when you decide to upgrade to a new PPOR, you can use the money in the offset as your deposit (instead of borrowing more for a non-deductible debt), and the interest on the outstanding amount on the old PPOR will then become tax deductible.
Every $1 you pay off the existing loan on PI means more tax later.
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
Thanks PLC!
I will look into changing to interest only on the PPOR, makes sense if I believe I'll be moving on in the next year or two.
Would you keep all of your IP loans as separate loans and interest only? Also, once I settle on a longer term PPOR would you take that loan out principal and interest?
I was looking at consolidating my loans with the same institution. Even if they are separate loans, at least they'll all be with the same bank and easier to manage, I may also be able to negotiate a better deal. Instead of having them spread across multiple institutions, would you recommend this?
Could you elaborate on this a bit further please Terryw?
Thanks Qlds007!
I will certainly look into interest only. Is coupling that with a 100% offset common or do only select banks offer this? Also, would you keep the loans all independent of one another or consolidate the IP loans (if that is possible)?
For my IP i applied for a new loan, with a separate lender to my PPOR. I had to put down a 5% deposit, and the bank lent me 95% (I found that surprising as an immense number of posts on here said that most banks would loan a 70% maximum to NRAS dwellings. It did take them slightly longer to approve and they did ask for additional information, but it all went through). But this loan does not currently have an offset attached.
As I asked PLC, would you look at principal and interest once you had a longer term PPOR? And do you see pros/cons in consolidating my loans with a single institution?
Cheers!
If you are paying down your PPOR when you change it to an IP there will be less deductible debt. Then you have to borrow for your new PPOR which is NON deductible debt. By making your current PPOR IO your loan will be higher which means more is deductible. Then the money in the offset can be used to buy the new PPOR.
Always pay down non deductible debt first. So when you move into your new PPOR pay any extra money into that (via an offset of course in case you move on again or want to use that money for something else).
If you have loans with the same bank that is OK. Make sure they aren't crossed though. It does create more work being with different banks. To start with I'd just use one. You can negotiate a better rate and it's easier when financing the next deal.
Once you get close to $1M I'd look at going to another bank. Apparently your "on the radar" once you reach $1M.
Haha thanks very much Catalyst, I'll take all that on board! What happens exactly once you become "on the radar"
JP888
Ok so you paid a cash deposit not ideal.
More importantly can you tell us which institution financed a 95% lvr on a NRAS property ?
Be keen to know. Maximum i have ever got a client is 90%.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
How should i have best financed the deposit Qlds007?
CBA financed it, like I said more info had to be provided, but it came through eventually. It was a land & construction loan, if that makes any difference.
Just think that you have to keep your cash for non deductible debt and borrow for any investment related expense – This will speed up your repayment of debt by increasing your tax deductions and decreasing your non deductible debt.
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
Yep, keep all your IP loans separate and interest only even if they are with the same lender, do not combine them.
If your intentions with the new PPOR are to live in it permanently then P&I with an offset account can be considered. If there is an inkling that you are looking at moving on from the new PPOR, even if its a long way into the future, then IO would still be the way to go.
Thanks for all of the info guys, all makes perfect sense and have a much clearer understanding now.
I'll look at restructuring it all shortly and changing my current PPOR to IO.
Is it worth having offsets attached to my IP loans? Or should I just have 1 offset attached to my current PPOR where I pool all of my money, have rent paid into from the IP's, and have all ingoing and outgoing payments attached to that single offset? I assume that would be best as it would effectively minimise my non-deductible debt whilst still maximising my deductibles on the IP's?
Just one offset against the PPOR.
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]
Can anyone recommend a reputable, switched on Mortgage Broker in Perth??
And can anyone point me in the direction of where I can find a thorough Checklist, if you like, of all possible tax offsets/deductions related to an IP in Australia?
Cheers!
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