Forums / Getting Technical / Finance / open mortgage

Viewing 10 posts - 1 through 10 (of 10 total)
  • Profile photo of KeithKeith
    Participant
    @twodogs
    Join Date: 2015
    Post Count: 9

    Hello i’m looking for comments on my situation, I currently have 3 ip’s and have just sold the oldest of them the reason’s for selling are many but the main one’s are renovation and CGT and a relatively small personal mortgage on our ppor. As we lived in the property for 9 years from purchase and then moved on to our current ppor which we intend on holding till retirement. The property as been a ip for less than 6 years exempting it from CGT. The sale has given me the opportunity to pay out the mortgage on the ip and that of my ppor in full also leaving me with $125,000 in cash after all fees and commissions have been paid. So my plan at this stage is pay off my mortgage and pay down some debt on the 2 remaining ip’s to increase equity (as i do intend to invest in property again soon).

    The question is do i close the mortgage or do i keep it open and use the offset account?

    I do desperately need a new car one thought i have was to clear the mortgage except for the funds needed for the car and place cash in the offset to minimise the already low interest.
    Is this a good idea and are there advantages in leaving the mortgage open i.e line of credit ?

    thanking all that read this

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,190

    You could keep the mortgage but pay out the loan and redraw and invest at owner occupied rates. Don’t use cash from the offset to directly invest as the resulting interest will not be deductible.

    Seek tax advice

    Terryw | Structuring Lawyers / Loan Structuring Pty Ltd
    http://propertytaxbook.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of Corey BattCorey Batt
    Participant
    @cjaysa
    Join Date: 2012
    Post Count: 1,010

    Definitely don’t close the PPOR loan down – as this is coded as owner occupied for purpose the lender will be giving you the lowest rate compared to investment use loans so it’s best to hold onto that.

    Either keep the funds in offset or into the redraw account – be careful however as not all lenders are the same in how they treat fully repaid loans with funds in redraw, some will automtically close the loan, whereas others will let the loan sit active and available to redraw indefinitely. Best to speak to an investment focused broker regarding your situation as this is a prime opportunity to setup the structures correctly before you jump back into investing – if you do it right you can strategically setup cost effective lending and be able to make a purchase as soon as the right opportunity comes up.

    Corey Batt | Precision Funding
    http://www.precisionfunding.com.au
    Email Me | Phone Me

    Investment Focused Finance Strategist - servicing Australia-wide

    Profile photo of Jamie MooreJamie Moore
    Participant
    @jamie-m
    Join Date: 2010
    Post Count: 5,069

    Agree with the guys above – keeping the account active to enable you to reinvest sounds like a good option on the condition that you won’t be tempted to spend the funds for non investment purposes.

    Cheers

    Jamie

    Jamie Moore | Pass Go Home Loans Pty Ltd
    http://www.passgo.com.au
    Email Me | Phone Me

    Mortgage Broker assisting clients Australia wide Email: [email protected]

    Profile photo of DentrinosDentrinos
    Participant
    @nickdentrinos
    Join Date: 2018
    Post Count: 2

    Don’t use cash from the offset to directly invest as the resulting interest will not be deductible.

    Dentrinos | Finance Mart - Finance & Mortgage Broker
    http://www.financemart.com.au/
    Email Me | Phone Me

    Finance Broker in Orange NSW Australia, Mortgage Broker in Orange NSW Australia

    Profile photo of blackhotelblackhotel
    Participant
    @blackhotel
    Join Date: 2010
    Post Count: 139

    The property as been a ip for less than 6 years exempting it from CGT

    Just out of interest, how does an IP get exempt from CGT if it’s been an IP for less than 6 years? An IP property is never exempt from CGT unless it was your actual home.

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,190

    The property as been a ip for less than 6 years exempting it from CGT

    Just out of interest, how does an IP get exempt from CGT if it’s been an IP for less than 6 years? An IP property is never exempt from CGT unless it was your actual home.

    Yes that is right. It must have been the main residence first. The op said he lived in it for 9 years prior to renting it out.

    Terryw | Structuring Lawyers / Loan Structuring Pty Ltd
    http://propertytaxbook.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of Ethan TimorEthan Timor
    Participant
    @ethantimor
    Join Date: 2016
    Post Count: 282

    The property as been a ip for less than 6 years exempting it from CGT

    Just out of interest, how does an IP get exempt from CGT if it’s been an IP for less than 6 years? An IP property is never exempt from CGT unless it was your actual home.

    Yes that is right. It must have been the main residence first. The op said he lived in it for 9 years prior to renting it out.

    Doesn’t the rule of 6 years apply only if at the same time the owners don’t nominate another property as their PPOR? 🤔

    Ethan Timor | Aligned Finance Pty Ltd
    http://www.alignedfinance.com.au/
    Email Me | Phone Me

    Active Investor & Broker; Based in Northern NSW, servicing Australia wide; Author of '34 Proven Ways to Maximise Your Borrowing Power' (download free from our website)

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,190

    The property as been a ip for less than 6 years exempting it from CGT

    Just out of interest, how does an IP get exempt from CGT if it’s been an IP for less than 6 years? An IP property is never exempt from CGT unless it was your actual home.

    Yes that is right. It must have been the main residence first. The op said he lived in it for 9 years prior to renting it out.

    Doesn’t the rule of 6 years apply only if at the same time the owners don’t nominate another property as their PPOR? 🤔

    Yes thats right Ethan. But the election only has to be made in the year of sale of the first of the properties.
    So if someone owned 1 Smith Street, lived in it for 5 years and then rented it for 5 years and moved into a newly purchased 2 smith street (so he owned 2 properties for 5 years) then he could decide which of then to class as his main residence if he were to sell either Number 1 or Number 2 in say year 10.

    If next door they probably have gone up at a similar rate so he might be better off claiming the number one being sold as he could avoid the CGT. The one being kept would be subject to CGT at a future date – but best to delay the payment of tax to the future. Plus the CGT could be minimsed by the 3rd element cost base expenses.

    Terryw | Structuring Lawyers / Loan Structuring Pty Ltd
    http://propertytaxbook.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of Ethan TimorEthan Timor
    Participant
    @ethantimor
    Join Date: 2016
    Post Count: 282

    Cheers, Terry. That’s good info 👍😎

    Ethan Timor | Aligned Finance Pty Ltd
    http://www.alignedfinance.com.au/
    Email Me | Phone Me

    Active Investor & Broker; Based in Northern NSW, servicing Australia wide; Author of '34 Proven Ways to Maximise Your Borrowing Power' (download free from our website)

Viewing 10 posts - 1 through 10 (of 10 total)

You must be logged in to reply to this topic.