Consolidating top up loan

[maloriopolium]

Hi,

I have one loan worth 260k on an IP. Couple of years ago, I decided to top up this loan and took out an extra 40k in order to purchase a 2nd investment property. The top up loan was set up as a separate loan.

Now I am thinking of consolidating the top up loan back with the original loan however I feel this may complicate my tax deductions for my first IP because the 40k was used to finance my 2nd IP, so if I combine it back with the 1st loan, am I allowed to just simply claim deductions against my 1st IP?

Would someone be able to advise on this situation?
Thanks.

 

[Aaron_C]

It's the purpose of the loan that dictates deductibility - not the security.

 

[Terryw]

Hi,

I have one loan worth 260k on an IP. Couple of years ago, I decided to top up this loan and took out an extra 40k in order to purchase a 2nd investment property. The top up loan was set up as a separate loan.

Now I am thinking of consolidating the top up loan back with the original loan however I feel this may complicate my tax deductions for my first IP because the 40k was used to finance my 2nd IP, so if I combine it back with the 1st loan, am I allowed to just simply claim deductions against my 1st IP?

Would someone be able to advise on this situation?
Thanks.

Yes this will complicate things.

As Aaron says the deductibility won't change, initially anyway.

But what if you want to pay down IP loan 1 in the future? e.g. you may decide to live in this property at some stage. If the loans were combined you couldn't pay down one and leave the balance on the second one untouched.

I guess you are wanting to get rid of the small one to save monthly fees maybe? Could you do an increase on IP2 and pay this one out?

 

[Peter_Tersteeg]

If you've got some equity available in the second IP, you could simply consolidate the $40k into the second IP. This is what that money was used for in the first place.

 

[maloriopolium]

Thanks for the replies.

I guess I could try asking the bank to do a 40k increase on IP2 and pay the top up loan out, but I have about 345k on the IP2. If I increase this (345k + 40k) to 385k this might take the LVR to above 80% so don't know if I'll have to pay mortgage insurance.

This might sound silly, but I wanted to combine the top up back with the original loan just to 'neaten' things up...ie I essentially have 2 IPs so I should technically just have 2 loans (1 for each). I don't actually get charged monthly fees since I'm on a package, so I guess I don't really have a good reason to combine them .

If the best thing to do is to leave them the way they are, then I'll just do that.

 

[Terryw]

That's silly!

Another thing to consider - what if you sell IP 1. You wouldn't want to pay out that $40k too.

Probably best to wait a bit and then try to shift the $40k over to IP 2 when the values increase.