Mixed purpose loan interest apportionment calculations help!

[flosed]

Got a question regarding mixed purpose loan interest calculation

For ex.

I have a POoR loan of 500k interest only, on 1/Mar I repay 200K to my loan to prepare redraw for IP purchase.
Same day 1/Mar I redraw 10K
2/Mar , I redraw another 10K (both for 10% deposit , because bank only allow 10K per day)
on 11/Mar IP settled bank withdraw 170k.
on 15/Mar I withdraw remaining 10K to make the load the same shape as it begins on 1/mar (I know this is not deductible debt )
20/Mar loan split to two. one 300k ,shrink original PPoR loan, one additional IP loan 200k. out of with (10+10+170) = 190k is deductible debt.


The interest after split on 20/mar is simple. My question is how to calculate interest between 1/mar and 20/mar.

My understanding of ATO rules is since 1/Mar I repay and redraw the loan, this loan is mixed purpose loan. All the further repayment and interest will be apportioned . Since I don't do any repayment since 1/May, only interest paid will be proportioned.

I can calculate interest daily like:
10K interest from 1/mar to 20/mar
10K interest from 2/mar to 20/mar
170k interest from 15/mar to 20/mar


Is that right?


I can also calculate it monthly according to ATO rules below. But daily calculate is much more that monthly calculation ( My example above is simplified , could not reflect actual data) .

Could anyone point out whether my calculation above is acceptable? Thanks !





FROM ATO website: http://law.ato.gov.au/atolaw/view.htm?docid=TXR/TR20002/NAT/ATO/00001

Apportionment calculations

19. Where interest on borrowed money accrues daily, we accept that it would be unnecessarily onerous to require a manual daily apportionment calculation.


total interest accrued for the month * deductible interest percentage figure
20. The deductible interest percentage figure is calculated as follows:


((A + B) / (C + D)) * 100
where

A = opening balance (beginning of month) of outstanding principal used for income producing purposes;

B = closing balance (end of month) of outstanding principal used for income producing purposes;

C = opening balance of total outstanding principal;

D = closing balance of total outstanding principal;

 

[Aaron_C]

I don't see how a daily calculation is difficult here? Take the headline interest rate on your home loan, divide it by 365, then multiply it by the number of days and loan amount to get the interest paid.

 

[Terry_w]

When you took out the $10k where did you put it? ie how did you get it to the vendor?

 

[flosed]

Thank you ! That's exactly what I plan to do. I know how to do it. My question is more about "is it right to do this" than 'how to do this?'

I don't see how a daily calculation is difficult here? Take the headline interest rate on your home loan, divide it by 365, then multiply it by the number of days and loan amount to get the interest paid.

Yes, all the money go directly to agent or Vendor. 10k * 2 wire transfer to agent's account , 170K auto debit by my loan bank while settlement

When you took out the $10k where did you put it? ie how did you get it to the vendor?

 

[Terry_w]

Yes, all the money go directly to agent or Vendor. 10k * 2 wire transfer to agent's account , 170K auto debit by my loan bank while settlement

Straight from the loan account?
I was worried you may have placed it in a savings account to send it.

 

[flosed]

That's right, straight from my loan account to agent/vendor. Not passing saving at all. My loan account has online bank feature.

Straight from the loan account?
I was worried you may have placed it in a savings account to send it.

 

[Rolf Latham]

id be looking hard at splitting the loan.................... just saying

ta
rlf

 

[flosed]

So no one has objection to my approach to calculate the interest
?

 

[Peter_Tersteeg]

The general method for calculating interest (on an interest only loan) is as Aaron said, figure out the daily interest and apply it over the number of days it's applicable.

It's not quite accurate, because interest is generally paid monthly, but calculated daily, so when it's calculated, towards the month you start paying interest on the interest already charged. If you didn't make your interest payment for an entire year, the amount you need to pay would be significantly more than the loan multiplied by the annual interest rate. This is why you get a decent discount for pre-paying your interest.

Dispite this, over the course of a month, the variation is quite small so for most purposes it's suitable to simply calculate it the way it's generally thought of.

And as Rolf said, split your loan into an investment portion and a PPOR portion. Don't just pay it down than redraw for investment purposes - this would have nasty tax conciquences.

 

[flosed]

Thank you . It's already split . I am just calculating the interest before splitting for this financial year.

Thank you very much!