LOC-Another Question

[amy21322]

Hello there,
Need some advice about LOC's, and didn't want to 'hijack' the previous thread. Hope this is OK.
The earlier thread mentioned a slim possibility of some banks withdrawing LOC's previously granted.
I have a margin loan with interest capitalized (at 10.2%)...LVR is now just under 70%. I also have a LOC with about $30,000 still available (at 9.36%).
Should I use this LOC to reduce my margin loan, given the circumstances?
I would really appreciate your thoughts and views on what's the best move.
Thanks in advance
Amy

 

[yo yo ma]

Hi Amy
It is a good idea to keep the LOC for either personal spending or investing. It can make it very messy at tax time, when trying to work out how much of the loan is deductible. If it is not all for investment, I would split the LOC to make it easier when it is time to do your tax return.

I would consider paying off some of the margin loan to get your LVR down to a more comfortable level but would make sure the loan is set up correctly first.

 

[amy21322]

Hi, yo yo ma,
Thank you for your advice.
The original LOC was taken using the equity in our home, and was for investment purposes only, I believe.
If I was to use the balance ($30,000) or part of the balance in paying down a margin loan used to buy shares in a fund, would that still be considered as an 'investment purpose' by the ATO, or is that still a conflict?
I don't want to use any part of this LOC for personal spending, as such.
Thanks once again
Amy

 

[yo yo ma]

The original LOC was taken using the equity in our home, and was for investment purposes only, I believe.
If I was to use the balance ($30,000) or part of the balance in paying down a margin loan used to buy shares in a fund, would that still be considered as an 'investment purpose' by the ATO, or is that still a conflict?

Excellent, just make sure you confirm the loan was for investment purposes because you said "I believe". I can't see anything wrong with using the LOC to pay part of the margin loan but I am not an accountant. Maybe someone else will give more advice and check with your accountant too.

 

[amy21322]

Hi, yo yo ma,
Yes, the loan was definitely for 'investment purposes'.
I'm going to use part of the balance to bring my LVR down to a more respectable level. I think that's making good use of the money available.
Appreciate your taking the time to answer my query.
Thank you.
Amy