redraw facility question

[MCM]

Hello

This is my first post but have been reading for a few days. I was wondering if someone could answer the question below.

I have a PPOR with a P&I mortgage. The mortgage has a redraw facility attached.

If I put $50k, say, capital into my mortgage and then redraw for investment purposes is that $50k then tax deductible?

Thanks

MCM

 

[Rolf Latham]

Hiya

Yes it will be deductible but approtioning the interest will be a nightmare.

best to split the product into a PI and IO portion.

ta
rolf

 

[Simon]

What Rolf says.

Don't redraw direct. Use a split loan function at the least or a LOC to clearly show two seperate loan amounts. This means you can direct all repayments into the home loan portion and let the interest grow on the investment portion.

As you pay down the home loan part you can draw the funds immediately to reinvest.

Ideally you will have a time when the deductible portion is all you have left!! That is a worthy goal.

 

[MCM]

Thanks

So how's this managed in practice? Are you issued with two separate accounts?

 

[Simon]

A split loan will be one account but it will show two seperate subaccounts - one for your home loan and one for your investments.

If you take a LOC then it will be on a seperate statement.

 

[MCM]

A split loan will be one account but it will show two seperate subaccounts - one for your home loan and one for your investments.

If you take a LOC then it will be on a seperate statement.

Thanks Simon

What happens if you have an loan that is interest only, has an offset account and a LOC facility?

Is that 3 separate statements?

MCM

 

[Simon]

yep.

An offset account is just a normal account that is designated 100% offset.

A LOC is a new loan to the loan account with redraw.

If you have those then you can use them as we have discussed.

Save in your offset account. If you wish to spend on personal use then do so.

If you wish to spend on investments then transfer the amount into your home loan. Draw funds from the LOC to pay for the investment.

As the LOC runs out have it increased by your lender. Don't make any payments on it until your home loan is gone.

None of this is advice - just generic examples of what you might consider doing. Please see an accountant to discuss this in more detail.

Cheers,

 

[MCM]

Thanks Simon - huge help