Loan structure for IP when PPOR has 0 balance

[htopg]

Current Situation:

PPOR:
value=$550,000
loan=$250,000 P/I
balance=$0
redraw avaliable=$230,000

cash in bank=$42,000
tax bracket=30%

Let's say I want to buy an IP worth $420,000

Options I can think of
1.
a.Redraw $94,000 (20% of $94,000+cost $10,000) from PPOR loan
b.Take out UBank (interest only) variable loan of $420,[email protected]%

2.
a.Discharge PPOR loan (need to pay $600-$1000 loan discharge fee)
b.Take an equity loan of $440,000 (80% of $550,000 value)
-> this will also be used to fund future IP purchases (20% depost+cost)
c.Take out UBank (interest only) variable loan of $420,[email protected]%

Q. Which options give me most tax effectiveness, future IP purchase possibility?

I was advices by a homeloan broker that I need a LOC (of small limit, say $10,000) for depositing rent and pay interests.
Q. Is this the way to go?

In both cases, I will not use the $42,000 to pay for IP deposit. Instead, I put $42,000 into a high interest transaction ccount (5.8%) under my spouse name (not working) to take advantage of $6000 threshold.
Q. Is this a sensible choice as far as tax effectiveness is concerned?

Thanks for your help and suggestions

 

[Aaron_C]

Who is your current lender?

 

[htopg]

Resi is my current lender.
5 years ago, they had the best rate available.

A few days ago, they said that unless I take out invement loan with then, I will get charged with loan discharge fee of $600-$1000.

 

[Aaron_C]

The redraw strategy sounds fine as long as you split up the loan amount properly.

You don't need a LOC, seems a bit strange to get one for this situation.

 

[Marty McDonald]

I wouldn't use Ubank for a purchase. They take weeks / months to get an approval I have heard. Also I realise they are backed by nab but I can (almost) guarantee you that the rate will creep up over the next few years relative to other loans. Sound familiar?

 

[Rolf Latham]

c.Take out UBank (interest only) variable loan of $420,[email protected]%

I will let others try and help on the other bits,.

Ubank wont do

1) A 100 % lend
2) a purchase loan. So u would need to get some lender to finance your purchase and then refinance out to Ubank some weeks later.

Are you ever likely to convert your PPOR to an IP ?


ta
rolf

 

[htopg]

Sorry about mistake in the original post.

I meant 80% of the purchase price.
That is, 80% x $420,000 = $378,000 will be provided by UBank.
The rest 20% + cost will be through equity of my PPOR - whether redraw from my current PPOR homeloan or closing it and then get another equity loan.

No, I will not convert my PPOR to IP.

 

[Rolf Latham]

No, I will not convert my PPOR to IP.

so either

1. they will carry you out in a body bag ( ie you will live there till u die) or
2. You will sell the place if u buy a new ppor ?t


ta
rolf

 

[Aaron_C]

I wouldn't use Ubank for a purchase. They take weeks / months to get an approval I have heard. Also I realise they are backed by nab but I can (almost) guarantee you that the rate will creep up over the next few years relative to other loans. Sound familiar?

Come on Marty, interest rate is everything these days...

 

[Terryw]

since your loan balance is nil i think it generally ok to use redraw. just becareful to maintain deductibilty by avoiding the money passing thru other accounts. this is for the deposit part.

for the main loan you could have pi or io, whatever u think best suited to your style. its probably good to have an offset account atached to park spare cash.

 

[StuartW]

Did you say your existing loan is P&I? If you redraw you'll have to make P&I repayments on investment debt. I wouldn't suggest that. You'll have to close this loan and establish an interest only one with Reis or another lender.

 

[htopg]

Did you say your existing loan is P&I? If you redraw you'll have to make P&I repayments on investment debt. I wouldn't suggest that. You'll have to close this loan and establish an interest only one with Reis or another lender.

Yes it is P&I.
If I redraw, I will have to make P&I payment even if I am ahead of my principal repayment. And I assume this will make tax deductivity of interests more complicated?

I have thought of closing (& pay loan discharge fee of $600-$1000) and then apply for equity access loan of $440,000 (that is 80% of value of my PPOR).

I think this will also enable me to fund future IPs.

Whereas if I stay with current PPOR P&I loan, while there is an available redraw of $230000,
1. the available redraw amount will decrease over time
2. it does not offer me to access the full equity ($440,000) of my PPOR.
3. once redraw, P&I has to be made, making tax deductivity of interests more complicated
Am I right about the above 3 points?

 

[Rolf Latham]

Yes it is P&I.
If I redraw, I will have to make P&I payment even if I am ahead of my principal repayment. And I assume this will make tax deductivity of interests more complicated?

I have thought of closing (& pay loan discharge fee of $600-$1000) and then apply for equity access loan of $440,000 (that is 80% of value of my PPOR).

I think this will also enable me to fund future IPs.

Whereas if I stay with current PPOR P&I loan, while there is an available redraw of $230000,
1. the available redraw amount will decrease over time
2. it does not offer me to access the full equity ($440,000) of my PPOR.
3. once redraw, P&I has to be made, making tax deductivity of interests more complicated
Am I right about the above 3 points?

clean the loan up

If u move that to ubank as well it should save u some % in interest and in the middle term cover the cost of the Resi exit.

However, rather than just focus on rate fees and the price of no frills 2 minute noodles, you may want to read and digest the redraw conditions that many lenders such as Ubank have. Quite openly displayed in section 7 of their mortgage memoranda.

Many people,once they understand the perceived risk in this will consider using a facility where their money stay THEIR money.

If you dont have spare cash and will just use the loan fully drawn it will never be an issue


ta

rolf

 

[Terryw]

tax deductibility on a pi loan wont complicate things at all. you have no private debt so paying pi wouldnt be that much of an issue either.

what interest rate u paying now?

 

[htopg]

tax deductibility on a pi loan wont complicate things at all. you have no private debt so paying pi wouldnt be that much of an issue either.

what interest rate u paying now?

My PPOR is with Resi Great Rate Home Loan Variable Rate, currently at 6.73%.

I just found out that UBank's 6.23% variable is for refinancing only, bugger..
My next option is BankWest's online 6.29% to fund 80% of my IP.

 

[Aaron_C]

My PPOR is with Resi Great Rate Home Loan Variable Rate, currently at 6.73%.

I just found out that UBank's 6.23% variable is for refinancing only, bugger..
My next option is BankWest's online 6.29% to fund 80% of my IP.

If you are going to be chasing rate all the time, you are going to be very disappointed.

 

[Rolf Latham]

My PPOR is with Resi Great Rate Home Loan Variable Rate, currently at 6.73%.

I think here may be some good personal evidence of what Marty was talking about re "slippage" over time

ta

rolf

 

[SYD]

I think here may be some good personal evidence of what Marty was talking about re "slippage" over time

ta

rolf

Are there any organisations where slippage does not occur?

SYD

 

[Rolf Latham]

Hi Syd

I doubt it

commercial reality works both ways

There is some argument that Cu's, Bs's and community banks and less likely, but in general the evidence ON THE GROUND is contra to that.

ta
rolf

 

[Marty McDonald]

Bankwest 2004.... best variable rate in market was their basic loan 6.45% from memory. I remember as was my first oo loan. Most pro pack rates at the time were about 6.65%. So not too different from now...Same Bankwest loan now 7.18%.....watch that slippage!!

My advice look for discount off the standard variable rather than low rates in general as the media focuses on the headline rates.