Can I use LOC to fund deposit on new IP?

Hi all,

Just joined after reading forum for months. Would appreciate some advice as my mentor has recently deserted me & I need to know what my options are now.

Currently, my partner & I have:

PPOR bought May 09 420K, IO loan 409K (VIC Aspendale) SVR minus 0.7 discount...asking broker to approach bank for more discount after reading others' successes at doing the same

IP1 bought 05 IO 275K loan (QLD Bris) (Incl 30K LOC, 5K drawn down - just recently worked up the courage to start using capitalising interest strategy, of course to own our own home sooner!) Fixed 4.99 3yrs Jan 09. Rent $350wk

IP2 bought 91 (VIC glen huntly), no mortgage, approx 330K Rent $310wk

IP3 bought 07 for parents to live in (Geelong) - they pay mortgage approx 296K IO. SVR

Westpac have advised we can have 121K in LOC secured by all of the above. These loans were taken out when we were both working. I have been on maternity leave for almost a year, so we're on just one wage & it will be this way for some time. How will the bank view us wanting the 121K LOC? Partner's wage is approx $1400 - $1600 fortnight.

How can we best use the LOC to fund another purchase? Can we use say, 30-50K of this as a deposit for a new property, tell the bank we want another 30-50K in LOC attached to new property for 'reno' purposes, but really for capitalising interest?

Does anyone have any other ideas about how best to move forward?
Thank you for all your advice, I really apprecicate it!
Hi Y-man,

Sorry, should have stated IP2 was used as security to purchase IP1, the bank won't let me seperate titles until LVR IP1 is below 80%. Bank also hold these two titles against PPOR. So I guess all the properties are tied together at the moment.
Hi Mary and Mat

I can see that u have a chunky PPOR mortgage there.

Are you using any form of debt recycling to rebalance the nonded debt with deductible debt ?

Hi Rolf,

Just the capitalising from IP1 straight into PPOR loan, and IP2 rent into loan also...using LOC to pay IP1 expenses...trying to pay down the 'bad debt' that what you mean?

Thanks, Mary
yes, doing that you should be able to convert that non ded real quickly

why only IP 1 ?? Why not accelarate the process with 2 and 3 ?

I guess I've been a tad scared of LOC...had to ask accountant twice if capitalising interest was ok before I started doing it a few months ago.

Had not even considered doing it for IP3, thanks for the advice!!!

Should I take out as much in a LOC as the bank will give me & use it to pay the interst on the IO loans while using their rent to pay down PPO that I "am fulfilling the Great Aussie Dream & own my own home sooner" (as it's the intent behind doing this that satisfies the taxman)?

(IP2 - no mortgage so all funds can go into PPOR)

Thanks again Rolf - much appreciated!

Get the max LOC u can get, but at the same time reduce the PPRO limit as well..........and balance them every time u have a 20 or 30 k difference.

The intent is buy more investment properties more quickly so u can pay more income tax , get it :)

Hi Rolf,

What do you mean 'balance them'?

Also, can I use 30-50K of this as a deposit for a new property (with the same bank), tell them I want another 30-50K in LOC attached to new property for 'reno' purposes, but really for capitalising interest?

Ta, Mary
as ur deductible LOC goes UP by x, you should adjust the PPOR debt DOWN by x

Yes,that same loc can be used for other investing purposes, though some would argue that a separate split would make for easier redord keeping