Finance structure...what am i missing?

[Comet]

I am looking for a new ppor and hopefully will find somewhere in the next few months. I just want to make sure my thoughts on loan set up is correct or see what i might be over looking.

Currently have -
Loan 1 $267,000 Interest only currently ppor planning on making rental once we move. (valued approx $350,000)
Loan 2 $21,000 interest only investment loan drawn from equity on current ppor used as deposit to buy property on loan 3
Loan 3 $145,000 interest only investment loan

Looking to buy valued at $450,000. We could use all of our savings and put the 20% deposit towards this purchase from our offset acct to avoid paying LMI. But then im thinking there is the possibility in 3 years time this house may then be changed into an investment for us as we may be moving interstate for work/family reasons. So if thats the case would i be better off paying the lmi and just putting in 10% deposit and putting rest in offset ? If i do this loan at 80% now can i increase it later to 90% lend if wanting to turn into investment property and pay the lmi then? Because of this thinking planning on doing this loan as IO and saving into offset.

My other question is wether we stay with the same lender - Westpac - or if there would be good reasoning to look at funding this loan elsewhere ?

Also do most lenders allow the stamp duty to go on top of the loan amount or need to be paid seperately? I know the lmi can be put on top of the borrowed funds but wasnt sure on the stamp duty.

Thanks in advance,

 

[Shahin_Afarin]

1. Seems like you have paid LMI on the current PPOR is that right? If so to what LVR did you go to?

2. How much do you currently have in savings?

3. Which loan account is the offset parked against?

Stamp duty cannot be added onto the loan - max LVR is dependent on the lender but must be less than 97% (some lender go a little over this).

If you are going to go into LMI with the new purchase - keep at 90%. Remember that LMI is tax deductible for the first five years for the life of the loan (which ever occurs sooner).

 

[Aaron_C]

Stamp duty is not funded by lenders directly because it is a cost, not an asset. LMI is only added on top of a loan as long as the underlying security is adequate.

 

[jonmardell]

Hi Comet, if you do the loan at 80% now and down the track you increase it to 90% depending on what the purpose of that 10% is for will determine if it is tax deductible or not. You will have to work your sums out to see if paying the LMI now is better due to the 10% extra debt you can claim interest on when the property turns into an investment. Stamp duty is separate in the LVR calculations so you have to fund that yourself. LMI can be capitalised onto the loan. Without have full details it is impossible to say whether westpac is a good/bad option for the new loan. If you have paid LMI on any of your current loans and properties have increased in value since you might be able to minimise your LMI cost that way.

I am looking for a new ppor and hopefully will find somewhere in the next few months. I just want to make sure my thoughts on loan set up is correct or see what i might be over looking.

Currently have -
Loan 1 $267,000 Interest only currently ppor planning on making rental once we move. (valued approx $350,000)
Loan 2 $21,000 interest only investment loan drawn from equity on current ppor used as deposit to buy property on loan 3
Loan 3 $145,000 interest only investment loan

Looking to buy valued at $450,000. We could use all of our savings and put the 20% deposit towards this purchase from our offset acct to avoid paying LMI. But then im thinking there is the possibility in 3 years time this house may then be changed into an investment for us as we may be moving interstate for work/family reasons. So if thats the case would i be better off paying the lmi and just putting in 10% deposit and putting rest in offset ? If i do this loan at 80% now can i increase it later to 90% lend if wanting to turn into investment property and pay the lmi then? Because of this thinking planning on doing this loan as IO and saving into offset.

My other question is wether we stay with the same lender - Westpac - or if there would be good reasoning to look at funding this loan elsewhere ?

Also do most lenders allow the stamp duty to go on top of the loan amount or need to be paid seperately? I know the lmi can be put on top of the borrowed funds but wasnt sure on the stamp duty.

Thanks in advance,

 

[Comet]

1. Seems like you have paid LMI on the current PPOR is that right? If so to what LVR did you go to?

2. How much do you currently have in savings?

3. Which loan account is the offset parked against?

Stamp duty cannot be added onto the loan - max LVR is dependent on the lender but must be less than 97% (some lender go a little over this).

If you are going to go into LMI with the new purchase - keep at 90%. Remember that LMI is tax deductible for the first five years for the life of the loan (which ever occurs sooner).

Thanks for replies everyone,

Q1 - Yes lmi has been paid on original loan lvr was around 90% but in partners name only so will have to check to the exact percentile what it was.

Q2 - currently have $80,000 saved and can borrow another $10,000 from family if needed, would only do the borrowing from family if wanting to avoid the lmi all together.

Q3 - offset parked against loan 1 current ppor.

Yes I dont think i would want to go over the 90% lend agreed.
At least now i also know to keep the stamp duty money aside as I can't borrow for this.

I will keep in mind the lmi being tax deductible if an investment property. That refers to new loan if moving out after 3 years of being a ppor and then turns into a investment the lmi can be deducted over the last two years ? Want to make sure I understand correctly

 

[Shahin_Afarin]

This is quite important because you can go back up to 90% and potentially pay only a small difference in premium as you will have the credit.

 

[Comet]

This is quite important because you can go back up to 90% and potentially pay only a small difference in premium as you will have the credit.

Even though it is a separate loan and secured against a different property ? I will find out exactly the lvr we went to on loan 1.

 

[Shahin_Afarin]

no I meant the LVR on loan 1 - you need to find out to what LVR you originally went and when did this occur. That will clarify a few things.

 

[Comet]

no I meant the LVR on loan 1 - you need to find out to what LVR you originally went and when did this occur. That will clarify a few things.

Ok, I feel like I really should know these figures off top of my head as been thinking about and reading a lot on these forums trying to learn

Although I don't, so have found loan documents which give me the following info.

Loan 1 originally taken out in 2006 $290,000 amount and paid $5330,93 in lmi. Under one name

In 2012 loan amount changed to $267,000 and create separate loan of $21,000.

2012 create loan of $145,719 for investment paid lmi of $1719,29. Property purchased for $160,000.

In 2012 loan 1 property valued at $360,000.

Before I knew about offsets and redraw etc i had saved $50,000 into loan 1 and then redrew it and put into offset when changing it to io loan. So therefore once property becomes an investment only $217,000 component of loan interest will be tax deductible. I'm not sure if this is going to impact decisions on structure.

 

[Rolf Latham]

]

Before I knew about offsets and redraw etc i had saved $50,000 into loan 1 and then redrew it and put into offset when changing it to io loan. So therefore once property becomes an investment only $217,000 component of loan interest will be tax deductible. I'm not sure if this is going to impact decisions on structure.

please seek specific Tax advice to your scenario - stuffing it up will have long term reverse compound impact if audited


ta
rolf

 

[Comet]

please seek specific Tax advice to your scenario - stuffing it up will have long term reverse compound impact if audited


ta
rolf

Yes you are right Rolf if I get this wrong big implications.

Will talk to our accountant about this also.

Thinking out loud wether it is possible to do a new loan for current ppor to get around the tax issue so that the maximum could be taken advantage of, but then I suppose the current lmi would be lost if this was done .... I'm glad I've started thinking seriously about this before I have found a new property.