Investment equity to pay of PPOR?

[dve009]

Hi guys! I'm new to this forum but I'm glad I found it..I'm sure I will learn a lot from it!

Just wondering if anyone can give me some advice..
Basically my situation is as follows:
PPOR currently owing $350K
IP currently owing $250K..

Say if I revalue the IP and the value comes back at $350K, can I borrow up to 80% to pay off my principle place of residency?

And if I can, does that mean I've lowered my non tax deductible loan and increased my tax deductible loan (which is a good thing I guess?)

Any assistance would be greatly appreciated!

Dve009

 

[linglc]

Hi guys! I'm new to this forum but I'm glad I found it..I'm sure I will learn a lot from it!

Just wondering if anyone can give me some advice..
Basically my situation is as follows:
PPOR currently owing $350K
IP currently owing $250K..

Say if I revalue the IP and the value comes back at $350K, can I borrow up to 80% to pay off my principle place of residency?

And if I can, does that mean I've lowered my non tax deductible loan and increased my tax deductible loan (which is a good thing I guess?)

Any assistance would be greatly appreciated!

Dve009

Oooo.... dangerous, as the purpose of that portion of the loan (amount from your IP loan) is for personal purposes, and not investment... ....

 

[dve009]

So can I still use that equity to pay off PPOR and not use that amount as a tax deduction?

 

[linglc]

So can I still use that equity to pay off PPOR and not use that amount as a tax deduction?

Hi dve009,

yes, that is correct. It can be done, just that portion of it is not tax deductible.

My accountant always tells me not to "taint" your investment loans, but there might be valid reasons for you to do that, i.e. much lower interest rates on the investment loans compared to your PPOR loan etc.

A good spreadsheet will help in keeping your deductible and non-deductible interest clear.

But beware of one minor thing with repayments into your investment loan "tainted" with personal portion ... ... any repayments will be allocated in proportion to the investment portion and personal portion.

What I am trying to say is that when you have 10K and want to pay down your investment loan, you cannot make the payment 10K into the investment loan and say that it is allocated for the personal portion. It will be paid off in proportion of the investment and personal portions. One way to get rid of the personal portion down the track is by way of refinancing the investment loan... ....

Check with your accountant to get better advice on this issue.

Cheers,

linglc

 

[dve009]

Ahh thanks for the advice!
So I can continually draw equity from IP to put it into my residence and just "refinance" the IP in say 10 years and the proportions all sort of "disappear"??
Is there a financial advantage to doing this or should I just wait around and as soon as there is enough equity for a deposit (gathered from both the IP and the PPOR) I should go for our 2nd IP?

 

[linglc]

Ahh thanks for the advice!
So I can continually draw equity from IP to put it into my residence and just "refinance" the IP in say 10 years and the proportions all sort of "disappear"??
Is there a financial advantage to doing this or should I just wait around and as soon as there is enough equity for a deposit (gathered from both the IP and the PPOR) I should go for our 2nd IP?

Not quite dve009.

When you refinance, you will then refinance for the amount that is equivalent to the investment amount, and cough up money equivalent to your personal loan portion to "settle" off the total loan... ...

You can't just refinance for the total loan amount (investment + personal portions) and assume that the personal portion has disappeared.

 

[Thann]

Umm...

To the experts:

Is there any situation where refinancing IP loans to pay down PPR debt would be useful?

 

[xcesiv]

What is your objective in the refinancing your IP and reducing your PPOR debt?

As everyone has mentioned, the tax issues raised with this refinancing can make it messy. This might be Saving you interest but it will be increasing your accountants yearly bill.

Advice given to me a while ago was to consider your PPOR as your home and any investments as a business.

Keep them seperated as much as possible. This way if you have an issue with your IPs then you still have a home.

Make your IP loan Interest only and pay any extra cash off your PPOR into an offset account.

Good luck with it all.

Warren

 

[The Y-man]

Is there any situation where refinancing IP loans to pay down PPR debt would be useful?

If the objective is to pay down the PPOR, one way (we did it) is to sell the IP.... You can then buy another IP buy borrowing a big amount. CGT can be a pain though....

Cheers,

The Y-man

 

[Mike F]

It is possible in certain ways if you structure your accounts and the main purpose is not to 'reduce tax' - I suggest you do a search on 'debt recycling' for some insight.

you could start here and here