Re extra mortgage payments/redraw

[S.T]

Is it possible to use up extra money you've put into a PPOR home loan when switching it to an IP by the bank taking payments directly from that money in the loan? What implications are there in doing that with the ATO?

Just thought it might be a better way of getting access (albeit slowly) to additional money you had put in to a PPOR mortgage when you switch it to IP.

 

[Peter_Tersteeg]

Functionally speaking it doesn't work very well with a regular home loan, they generally can't take repayments directly from the loan account.

You could do it if the loan is a LOC, but then you'd get into the issues with capitalising interest.

 

[Rolf Latham]

If you use an LOC product AND direct the rent for that property to the LOC as well, its likely that capping interest would be ok, but youd want to get the OK from your tax person !

ta

rolf

 

[S.T]

Thanks for the responses guys.

Not an LOC, standard type home loan with for example, an extra 20k paid off it and available for redraw.

 

[Jake D]

Functionally speaking it doesn't work very well with a regular home loan, they generally can't take repayments directly from the loan account.

Is this not how a "repayment Holiday" works? I thought they were reasonably common and simple to execute.

I assume this will cause problems with tax deductibility though.

AS always please refer to my signature.

 

[Rolf Latham]

Thanks for the responses guys.

Not an LOC, standard type home loan with for example, an extra 20k paid off it and available for redraw.

use the redraw to pay expenses such as rates etc?
t
rolf

 

[S.T]

Yeh like a repay holiday. No expenses Rolf, just the loan repayments.

Ok, so seems there may be tax implications in doing it this way, makes sense.

 

[Terry_w]

If the interest on the underlying loan is deductible then the interest on the capitalised portion will be deductible - but if it is done with the dominate purpose of attaining a tax benefit the ATO could deny the deduction.

 

[S.T]

I'll try and explain this a bit more clearly.

Mortage owing $220,000
Available for Redraw $20,000 (Extras repayments)

You switch the property to IP, ring your bank and ask if they can take your normal monthly payments of $2,000 out the extra money in the loan for 10 months, they agree.

After the 10 months are up, payments are taken out of your nominated savings account again.

Would the ATO kick up a fuss about this?

 

[Peter_Tersteeg]

Jake described it well, a repayment holiday could be what you're looking for. Talk to your lender.

 

[S.T]

More interested in the tax complications than whether a lender will do it.

 

[Terry_w]

I'll try and explain this a bit more clearly.

Mortage owing $220,000
Available for Redraw $20,000 (Extras repayments)

You switch the property to IP, ring your bank and ask if they can take your normal monthly payments of $2,000 out the extra money in the loan for 10 months, they agree.

After the 10 months are up, payments are taken out of your nominated savings account again.

Would the ATO kick up a fuss about this?

Why are you wanting to do this?

 

[S.T]

I'm not, just curious as I see so many posts from people who have large amounts of loans paid off then want to switch the property to an IP.

Thought this may be a more effective way of using this additional money instead of redrawing it in cash and potentially having issues with the ATO.

 

[Terry_w]

If you are doing it to increase your tax deductions then the ATO may have issues with it. Otherwise you may be fine.

 

[Aaron_C]

Generally speaking the ATO likes to look for things that will generate them the biggest amount of penalties/charges after an audit as they have costs/benefits targets to meet. Small interest capitalisation (which is what you are going for) isn't really going to attract a huge penalty that they can then whack you with. Claiming deductions when you shouldn't is another matter which they look for.

 

[Terry_w]

That is a good point Aaron makes. Someone may have an arguable basis to claim capitalised interest. If the ATO discovers it and then rejects it the penalty should be low.