Help me understand home loans

[macdub]

Hi guys,
I have a PPOR loan and purchased IP1 last year. The IP1 is 350k and the loan is split into 315k and 45k. Now what I wanted to ask is that the 45k loan (I guess equity loan for deposit) is linked to PPOR or it belongs to IP1?

My PPOR loan is increased by 45k, is this correct? So If I sell PPOR, I have to pay off this 45k?

And how the equity on IP1 will be calculated? If 45k loan is on PPOR then IP1 has outstanding 315k only and thus means it has already got 35k equity?

Didn't knw anything about structuring loans etc and came across SS after getting IP1

thanks in advance.

 

[Aaron_C]

Well if you don't know that means that the equity in PPOR was used to secure the IP loan which probably was done as a cross collateralisation.

 

[Peter_Tersteeg]

If it's done right, your PPOR is the security for $45k loan. The purpose of this loan is to purchase an IP so it is tax deductible.

Strictly speaking the equity in your PPOR is calculated as:
PPOR value - (PPOR loan + $45k equity loan)

The equity in your IP is:
IP value - $345k IP loan

If you sell the PPOR you'll need to pay off the $45k because there probably won't be enough equity in the IP to secure the $45k loan, at least until the IP increases in value.

 

[macdub]

If it's done right, your PPOR is the security for $45k loan. The purpose of this loan is to purchase an IP so it is tax deductible.

Strictly speaking the equity in your PPOR is calculated as:
PPOR value - (PPOR loan + $45k equity loan)

The equity in your IP is:
IP value - $345k IP loan

If you sell the PPOR you'll need to pay off the $45k because there probably won't be enough equity in the IP to secure the $45k loan, at least until the IP increases in value.

Thanks PT_Bear. You mean
The equity in your IP is:
IP value - $345k IP loan (345??? or 315??)

 

[Peter_Tersteeg]

Thanks PT_Bear. You mean
The equity in your IP is:
IP value - $345k IP loan (345??? or 315??)

Doh! My apologies I didn't read closely enough:

IP value - IP loan
$350k - $315k = $45k

 

[Colin Rice]

Didn't knw anything about structuring loans etc and came across SS after getting IP1 thanks in advance.

Hang around here long enough and the penny will drop.

 

[Sean M]

I think PT Bear has pretty much covered all the points. The idea of borrowing against your PPor is to give you the leg up to purchase the IP property.

Q1. Should you sell your PPOR you will have to pay back the $45k however, one assumes that you will come out close to neutral.

I.e. Sale of house for $350k = $315k pay of split loan 1, $45k to pay of split loan two.

Don't forget that if you do sell using an agent you have to pay commission and any other ancillary costs.

Q2. Equity on the IP is separate; IP equity = Value of IP - Loans Held against the IP itself.

Hope that helps probably just repeated what PT said haha

 

[macdub]

another question guys..how is the capital gains calculated then..If I sell my IP for say 375, the gains are 25k (350k purcahse price) or 60k (315k loan as 45k is against PPOR)?

thanks

 

[Aaron_C]

another question guys..how is the capital gains calculated then..If I sell my IP for say 375, the gains are 25k (350k purcahse price) or 60k (315k loan as 45k is against PPOR)?

thanks

Capital gains is based on the price of what you sold it for minus what you paid for it. It's got nothing to do with the loan.

 

[macdub]

thanks Aaron..that was quick