Different ways to unlock capital from a property

[mgs4]

Example:

Property value 500k.

Mortgage Is 400k or 80% LVR with 200k in offset.

Reduce 400k mortgage by 100k from offset reducing PPOR debt to 300k.

Reborrow the 100k in a separate loan split/LOC and use for deposit plus costs for IP purchase.

Debt is the same over PPOR but the structure is changed to create 100k tax deductible debt if used for investment purposes.

Thanks very much for the explanation, really well explained. So you can pay back principal of a variable loan at any point in time can you, and the costs are minimal?

Yours is a great point, you don't change the debt you just change the use of the debt, swapping use from PPOR to IP to achieve the tax deductible status. And I don't really see any potential downside to this right?

We were also looking at getting an additional variable loan against the property because the val has gone up. Therefore back to your example I guess the way we should do this is,

Property - $500k (now val at $600k)
Debt $400k (80% LVR)

Pay off $100k debt. Debt is now $300k.
Then borrow another $180k, through an additional loan, taking total debt to $480k being 80% of LVR through an additional loan?

 

[Colin Rice]

Answers in red below;

Thanks very much for the explanation, really well explained. So you can pay back principal of a variable loan at any point in time can you, and the costs are minimal?

Correct and is a matter of transferring funds into the mortgage from an offset for example. Would only do this if required for example if serviceability became an issue with that lender.

Yours is a great point, you don't change the debt you just change the use of the debt, swapping use from PPOR to IP to achieve the tax deductible status. And I don't really see any potential downside to this right?

Correct, only downside is that if you rent his property in the future the principal will be reduced therefore reducing deductible interest.

We were also looking at getting an additional variable loan against the property because the val has gone up. Therefore back to your example I guess the way we should do this is,

Property - $500k (now val at $600k)
Debt $400k (80% LVR)

Pay off $100k debt. Debt is now $300k.
Then borrow another $180k, through an additional loan, taking total debt to $480k being 80% of LVR through an additional loan?

Yes, you have got it

 

[mgs4]

Answers in red below;

Just administratively is it simple to payback the variable loan and then get the new top up loan of a larger amount. Do banks do these sort of changes often and its administratively quick and simple?

 

[Colin Rice]

Just administratively is it simple to payback the variable loan and then get the new top up loan of a larger amount. Do banks do these sort of changes often and its administratively quick and simple?

I would make your intentions known upfront to broker/branch lender and wait for the approval before transferring any funds.

Dont know your full story so........