Is it an option to us IP equity to boost your own homeloan down payment

[Blixsem]

Hi,

So is it an option to draw down the equity on your IP and putting the cash into an offset account linked to you primary residence homeloan.

What are the benefits or negatives ?

I understand the cash obtained would not be deductable as it is not being use towards investing in new IPs. But still is there a benefit from doing this.

Regards...

 

[alexlee]

What are you seeing as the benefit of this?

 

[D.T.]

Computer says no.

 

[Mick C]

I understand the cash obtained would not be deductable as it is not being use towards investing in new IPs. But still is there a benefit from doing this.

Regards...

^ so where's the benefit?

Answer is no....at the end of the day a loan is a loan, BUT there's a diff btw a bad loan and a good loan from a tax point of view- since your not gonna claim the interest deduction where's the different with your current loan and the new cash loan? All your doing is changing security.

 

[Blixsem]

The difference is the tenant is paying the interest occurred on the lump sum amount I took out of the IP with the weekly rent.

I win by saving interest on my private homeloan as the lump sum money is sitting in an offset account linked to my private homeloan.

A marginal win, I know, but that is the question is it worth doing ?
Is anyone else doing this ?

 

[Peter_Tersteeg]

In effect, you're drawing equity out of your investment property to reduce the interest on your non deductible loan.

It's fine to do this, but you can't claim the interest on the equity you draw from the IP, so the net effect is zero.

You can't claim the interest on the IP equity loan. Deductability is determined by how the funds are used, not by the property used as security. You're using the funds for a non-deductible purpose, so no tax deduction is allowed.

You're just moving the interest paid from one place to another. Assuming the rates are the same it will only make things obscure and not give any financial advantage. Where the rent goes makes no difference at all, you can put that into an offset against your PPOR already.

Worst case the ATO may decide you're trying something shifty and perform an audit. Even if they don't find anything it's not a process you'll enjoy.

 

[alexlee]

A marginal win, I know, but that is the question is it worth doing ?
Is anyone else doing this ?

There is no win. At all.

 

[Blixsem]

Thx guys!!

 

[Mick C]

The difference is the tenant is paying the interest occurred on the lump sum amount I took out of the IP with the weekly rent.

??? i either misunderstood your questions or there's some confusion on how this works...


1. Say the tenants pays $400 pw rent...this would go into your offset account which would offset the mortgage ( Ppor or IP)

2. Getting Equity out from your IP to pay down your PPOR is just asking for trouble as your mixing your taxable debt...

ANY borrowed funds ( regardless of the security) can only be tax deductible if the purpose is used for Investment purposes.....

-----
2 scenario.

scenario1: Take out some equity from IP and used the funds to purchase other IP = OK

scenario 2: Take out some equity from IP and have the funds sitting there against the same IP = OK


scenario 3: Take out some equity from IP and have the funds sitting in the Offset account that's secured against the PPOR - a big no....as your mixing cash with borrowed funds for 2 diff purposes UNLESS you plan on using the equity for personal reasons as well?
and even if you use it for personal reasons you can't claim the interest on the IP equity anyway.....

End of the day, what are you trying to achieve? why do you want to take out funds from your IP and have it sitting in the PPOR offset VS it sitting in it's own IP offset?? There's more than one way to skin a chicken, so if you enlighten us on what your trying to achieve might be able to give you a few options.

 

[Blixsem]

Thx Mick, Peter settled it for me...

Basically a no go!

 

[vaughan]

You need to read about "debt recycling".