Owning IP while renting - looking to buy PPOR

I have a little problem with loan structure and was hoping for some guidance before running of to a broker/accountant.

My wife and I currently rent, but she owns an a small apartment IP worth around $230K - we have been paying down the loan and now there is just $1 left on the mortgage so that we can keep the line of credit open. This is just a standard HL with no offset.

We also have $50K cash which we want to use to buy a PPOR valued between $350-$450K. I have now realized the error of our ways and realized that our structure is terrible. Because there is no offset, we can't claim mortgage interest on the the cash that we take out of the IP to pay down the PPOR loan.

By my calculations, this is going to cost us $3.4K/year! based on
$190K initial property price * 4.6% loan interest * 39% marginal tax rate

If this is the case, I think we should just sell the place, but all the proceeds towards the new mortgage and then consider an interest only + offset IP down the road. We could even buy an identical apartment in the same building as we are pretty happy with the investment.

Does anyone have any ideas for restructuring the loans without a sale? I was looking at some of the spousal transfer options but I don't think this would qualify as love + affection.
 
Yes, sorry to say your assumptions and your calculations are correct.
One thing is though, if you keep the property the rent will help you pay down your PPOR loan faster.

If you decide to sell then buy again you also need to consider CGT plus ingoing and outgoing costs. That will add up.

If you think it's a good investment I'd keep it and work on paying down your non deductable debt (ie the new PPOR loan). You could get a LOC on the IP and pay all bills out of that. that way all the rent goes to you, thus paying down non deductable debt and having a small deductable debt.

good luck with it.
 
I have a little problem with loan structure and was hoping for some guidance before running of to a broker/accountant.

My wife and I currently rent, but she owns an a small apartment IP worth around $230K - we have been paying down the loan and now there is just $1 left on the mortgage so that we can keep the line of credit open. This is just a standard HL with no offset.

We also have $50K cash which we want to use to buy a PPOR valued between $350-$450K. I have now realized the error of our ways and realized that our structure is terrible. Because there is no offset, we can't claim mortgage interest on the the cash that we take out of the IP to pay down the PPOR loan.

By my calculations, this is going to cost us $3.4K/year! based on
$190K initial property price * 4.6% loan interest * 39% marginal tax rate

If this is the case, I think we should just sell the place, but all the proceeds towards the new mortgage and then consider an interest only + offset IP down the road. We could even buy an identical apartment in the same building as we are pretty happy with the investment.

Does anyone have any ideas for restructuring the loans without a sale? I was looking at some of the spousal transfer options but I don't think this would qualify as love + affection.

Speak to a lawyer about buying your wife's property off her and borrowing 103%. If the property is in Vic it could possibly be done without stamp duty and if a former main residence perhaps no CGT.

You must set it up property or no interest will be deductible.
 
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