How often to release equity

[lenojd]

How often would it be logical to go back to your lender and refinance and draw down on any equity that you have in your property?

I know it would be dependent on needs and theoretically could be done as often as you have sufficient equity, but for example, would it be silly to do so every 50k just to park the money in an offset account?

 

[D.T.]

Some lenders 3 months, some lenders 6 months, some more.

Will depend if it's actually grown in value in that time as well.

Will also depend on whether LMI is applicable, some lenders dont like doing topups in LVR territory.

And some lenders what proof of what you're doing with those funds - eg purchase contract on next property.

 

[Terry_w]

would it be silly to do so every 50k just to park the money in an offset account?

Yes, because from a tax point of view this could ruin deductibility of interest. Why not set up a LOC or a loan with redraw and pay back into the loan. You don't want to constantly keep borrowing and parking in a savings account.

How often you increase loans will depend on the lender's policy - some like ANZ allow increases at anytime, others like Macquarie have a policy of 6 months.

 

[lenojd]

Yes, because from a tax point of view this could ruin deductibility of interest. Why not set up a LOC or a loan with redraw and pay back into the loan. You don't want to constantly keep borrowing and parking in a savings account

Whilst this holds true for a savings account, it won't affect interest if it sits in an offset account effectively offsetting any incremental interest charge.

 

[Jess Peletier]

I think Terry means that the link between the funds use becomes blurred if you're constantly drawing funds from a loan and parking in an offset.

 

[Terry_w]

Whilst this holds true for a savings account, it won't affect interest if it sits in an offset account effectively offsetting any incremental interest charge.

An offset is a savings account. And deductibility could still be ruined.

 

[Evgen]

Quick related question for you guys.

Let's say I top up existing PPOR loan and split it to loan 1 (same amount as current loan) and loan 2 (which is for any equity that can be released). The lender does not have an offset but only redraw option. Can I then redraw the funds when I find my next IP so that the interest on loan 2 is still tax deductible?

 

[tobe]

Check with your accountant, but my understanding is the tax office considers redrawing to be the same as new borrowings. So yes it becomes deductible when you redraw it for income producing purposes.

 

[D.T.]

An offset is a savings account. And deductibility could still be ruined.

Stop using your scare tactics to generate business, there's ATO documentation saying that this is perfectly acceptable (if used correctly).

 

[Terry_w]

Stop using your scare tactics to generate business, there's ATO documentation saying that this is perfectly acceptable (if used correctly).

Are you qualified to say this?

 

[Terry_w]

With parking money in a savings/offset account there are 2 risks

1. Easily contaiminating the loan with non borrowed money
2. Weakening the connection between the borrowings and the interest.

I agree that the interest could be deductible where the borrowed money is parked in a clean savings/offset account. But where possible the best way to proceed is to always borrow directly for the payment of the expense. This is best done with a LOC or a loan with redraw.

 

[D.T.]

Are you qualified to say this?

No but the ATO is.

Simply don't contaminate it.

 

[Shahin_Afarin]

You should try and access the equity when possible (unless you are not disciplined with your funds).

You don't know whether your situation may change or the lender's appetite for lending.

Common examples of your situation changing is one income goes on maternity leave, probation, IT professionals changing from PAYG contractors to contractors being paid to their ABN, etc.

We are already seeing lenders tighten their policies around equity releases which only re-enforces this rule.

Also don't forget that if you have previously paid LMI on a loan - you will be able to re-use the LMI credit.

 

[Terry_w]

No but the ATO is.

Simply don't contaminate it.

thank you for your wisdom dave traeger

 

[D.T.]

thank you for your wisdom dave traeger

You're welcome Terry Lawyer/Taxguy/Broker/Dentist/shoeshiner Waugh.

Is this a pattern?

 

[Rixter]

You're welcome Terry Lawyer/Taxguy/Broker/Dentist/shoeshiner Waugh.

Is this a pattern?

Tugga, to his mates.

 

[Amy White]

there's ATO documentation saying that this is perfectly acceptable (if used correctly).

Hi D.T. any chance of posting the link I'm keen for a read thanks!