When an IP loan has been topped up, and the extra cash used for personal purposes, obviously, only part of the loans interest is then considered to be deductable. The general treatment by accountants is to calculate the non deductable percentage of the loan, and claim only the deductable percentage of the interest. This will continue for the life of the loan!
This is a bit of a headache for the accountant, but not that big a deal for the borrower, right? But what should you do when you want to make extra repayments on the loan? Obviously you would want these extra repayments to apply to the non deductable part of the loan. If the loans were separate this would be easy.
Is there an easy way to separate the debts?
Should you maybe refinance by creating one loan for the deductable debt, and maybe a LOC or similar for the non deductable component?
This would allow you to pay off the non deductable LOC ASAP, whilst making minimum (IO) repayments on the deductable loan.
I know a good broker would get this right in the first place, but if you got it wrong, could a decent broker sort out this mess for you?
Thanks in advance for the help
This is a bit of a headache for the accountant, but not that big a deal for the borrower, right? But what should you do when you want to make extra repayments on the loan? Obviously you would want these extra repayments to apply to the non deductable part of the loan. If the loans were separate this would be easy.
Is there an easy way to separate the debts?
Should you maybe refinance by creating one loan for the deductable debt, and maybe a LOC or similar for the non deductable component?
This would allow you to pay off the non deductable LOC ASAP, whilst making minimum (IO) repayments on the deductable loan.
I know a good broker would get this right in the first place, but if you got it wrong, could a decent broker sort out this mess for you?
Thanks in advance for the help