How to get cashout

[tvadera]

Hi All,

I am currently refinancing my loan, unlocking equity

So my loan would be 400K (tied against PPR). Variable P&I loan with offset

And cash out amount would be 100K. This would be used to buy investment property in future.

My question is what's the best way to structure this 100K.? It should be IO that's for sure because it would be used for investment purpose.

1. Have a separate loan for 100K . Should this have an offset account? Pros n cons

2. Have a separate loan for 100K without offset account. In this case wouldn't I be paying monthly instalments of say 415 p/m? How would this work confused

Any help would be appreciated.

Regards,

 

[Rolf Latham]

Hi TV

separate loan

use a facility with your lender so you only pay interest on what you use

options

loc
redraw loan
offset loan ( with the offset being used ONLY for

have a chat with your accountant too pls !

ta

rolf

 

[tvadera]

Thanks Rolf.

With regards to redraw, so if loan is drawn down i.e. 100K and 100K is put back into the loan with full 100K redraw then won't I be paying interest because loan is drawn hence I would have to pay monthly commitments.

OR because loan is paid back in full with entire amount available as redraw there is no monthly repayments?

Hi TV

separate loan

use a facility with your lender so you only pay interest on what you use

options

loc
redraw loan
offset loan ( with the offset being used ONLY for

have a chat with your accountant too pls !

ta

rolf

 

[Terry_w]

Interest is only charged based on daily balance of loan (nearly all mainstream lenders).

Def get a separate loan for the $100k. I would suggest a LOC because of the ease of making payments directly from this loan (and thereby avoiding potential problems with deductibility).

No need for an offset as all cash should be kept in the 100% offset attached to the main residence loan (as non deductible)

 

[Jamie M]

With regards to redraw, so if loan is drawn down i.e. 100K and 100K is put back into the loan with full 100K redraw then won't I be paying interest because loan is drawn hence I would have to pay monthly commitments.

Nope - you shouldn't start paying interest until you start to use the funds, and even then, you'd only be paying interest on the funds that you've used.

If going down this path, it's worth while keeping a small amount owing on the loan (say $1k but ask your lender) otherwise a balance of $0 could cause the lender to automatically close down the facility on the assumption that it's been paid out in full.

Cheers

Jamie

 

[Mick C]

Yes def a separate facility;

1. LOC
2. Redraw ( cash out $100k- Put $99k back in)
3. SEPERATE offset ( only if it's fee-free)

 

[D.T.]

2. Redraw ( cash out $100k- Put $99k back in)

Asking for tax contamination trouble?

 

[Aaron_C]

Asking for tax contamination trouble?

No, not for a separate loan.

 

[Jamie M]

Like Aaron said - separate loan for a separate purposes.

If the redrawn funds from the loan were used for a mixture of personal and IP purposes than you'd have issues.

Cheers

Jamie

 

[Shahin_Afarin]

Asking for tax contamination trouble?

I would still keep it separate (just to get things on their own and clean) which is why I am big fan of lenders that provide unlimited splits and offsets.

 

[Mick C]

Asking for tax contamination trouble?

Separate/split loan. So it's fine.

 

[Terry_w]

Separate/split loan. So it's fine.

Not necessarily. Depends how it is processed.

Some lenders insist on paying the money out to a savings account. If this happens and there is other money in the account the loan will be contaminated.

 

[SYD]

Not necessarily. Depends how it is processed.

Some lenders insist on paying the money out to a savings account. If this happens and there is other money in the account the loan will be contaminated.

I disagree with this Terry_w.

SYD

 

[Terry_w]

I disagree with this Terry_w.

SYD

Which part Syd?

I have had 2 recent experiences with Homeside and ANZ where I couldn't get them to put the money back into the loan - tried going up the food chain of management too.

One client ended up deciding to use a savings account - they gave the wrong number of the borrowed funds were deposited and mixed with non borrowed funds contaminating the loan.

 

[Jamie M]

I'm obviously not an accountant but in those circumstances I'd promptly move the funds back into the equity loan so if there's any issue in the future you can clearly demonstrate that there was no intention to deliberately avoid tax.

It's more so a matter of the lender being incapable of delivering the funds in any other way rather than the borrower doing some they shouldn't. The compromise is taking out a LOC which penalises the borrower due to having to pay a premium.

Cheers

Jamie

 

[SYD]

Terry_w, it all comes down to the purpose of the loan. And sometimes the purpose of the loan can change such as when you convert your PPOR to an IP and the loan interest suddenly becomes deductible.

SYD

 

[Terry_w]

Terry_w, it all comes down to the purpose of the loan. And sometimes the purpose of the loan can change such as when you convert your PPOR to an IP and the loan interest suddenly becomes deductible.

SYD

Syd - not sure how this related to my post above which you disagreed with.

Deductibility depends on purpose but also use of the funds as well.

When you convert a house from a PPOR to an IP the purpose of the borrowings hasn't changed. You borrowed to buy the house. The interest becomes deductible because the use of that house has changed to income producing.