Refinance with possible future IP purchase

[kamchatsky]

Currently I am on Westpac with PPOR loan of 525K and is currently moving to ANZ Breakfree with 1% discount. ANZ has valued my house at 800K. I have cash at 140K on Westpac offset.

ANZ suggest I borrow up to 80% LVR (ie 640K, ie extra 105K) against the home. I had to fill in a statuory declaration of buying a n investment property to get the extra cash. The plan is to leave the extra 105K on ANZ offset so there is no additional interest being paid.

Given that X-coll is not good, is it possible to take that extra 105K out of offset, and use it as deposit to buy IP but with another bank? Or that money must stay with ANZ account? I never have IP so have no idea how best to structure it, except to try to avoid X-Coll whenever I can, based on reading the forum.

 

[Aaron_C]

Don't bother. The money in your offset is your money, so you can do with it as you please. I would wait until you are going to buy another IP, and then use that $140k as a deposit when that time comes.

 

[kamchatsky]

So once ANZ releases the additional money into the offset, I can do whatever I want (ie travel, buy car etc), and not according to my staturory declaration? What I really am thinking is that the extra 105K borrowed out of ANZ against my home can be used to buy property but with other banks. Or ANZ just doesn't really care?

 

[Aaron_C]

No as in the money you currently have in your offset is yours for your own use. I do not suggest getting more money out right now if you haven't made any purchase. What's the point? Why bother with a statutory declaration to make a purchase when you haven't done so? Refinance/Apply for a loan when the time comes - not just because the bank told you to.

 

[jrc77]

So once ANZ releases the additional money into the offset, I can do whatever I want (ie travel, buy car etc), and not according to my staturory declaration? What I really am thinking is that the extra 105K borrowed out of ANZ against my home can be used to buy property but with other banks. Or ANZ just doesn't really care?

Edison,

I'm sure there is a clause of some description in your loan agreement that says if you misrepresent to the bank what you are going to use the money for then they can make you pay it back immediately. Doubt it would happen in practise.

Did your stat dec say you would only use the money to purchase a IP where all the money come from ANZ? If not, then wouldn't expect there to be an issue getting the loan for the IP with another bank.

Also sounds like you are on your way to contaminating your deposit and not being able to claim it as tax deductable when you purchase your next IP! This is because your new drawdown ($105k) will be mixed with private funds in the offset account (your $140k).

If you want to use the the extra funds as a deposit on the IP, make sure that ANZ setup your new loan with two accounts - one for the PPOR debt and one for the IP deposit. Ideally leave the IP loan account undrawn until you use it for the deposit on the IP. Someone who uses ANZ may know a better way (for example, draw down to offset account, but push back through the loan account just before using it as a deposit on IP - to ensure the payment from loan account to the IP is clear).

btw. 640k - 525k = 115k by my maths

Regards,

Jason

 

[Rolf Latham]

Hi

Please make sure the money you are drawing sit in an offset account of its own against the investment loan only otherwise you will have contamination issues


ta
rolf

 

[kamchatsky]

You are right it is 115K and not 105K.

So what you are saying is not to redraw the 115K, and just leave the 140K offset against ANZ PPOR loan, and then use my 140K for IP deposit?

For the stat dec, it just said the money will be used to buy more property. so I guess yes (err to caution)?

In terms of contamination, what can I claim against my redraw, you mean the interest against the amount redraw from my PPOR, right? I am still trying to get my head around this.

Pretty much I want to buy IP without touching my 140K against PPOR and also not X-Coll with ANZ. ie buy another IP with 80% LVR with another bank, without me using any of my money but just get it from additional funds available from ANZ against PPOR. That is really my ultimate aim. Or that is just bad in terms of tax deductibility?

 

[Marty McDonald]

Would be much better IMO if you split the loan now. Ppr debt and then the extra as a seperate loan with an offset attached. Park funds in offset after drawdown, to be used as deposit in the future. Don't use these funds for anything else besides when you use as a deposit otherwise you may loose the claimability of the interest on that loan. Nexus... Has been discussed here a fair bit.

 

[CHam]

Why would you take extra money out of your PPOR and increase the loan?

I would be leaving the loan as it stands AND paying the $140k into it also to get the PPOR loan down as low as possible.

Then use the resultant equity to borrow for an IP.

 

[jrc77]

You are right it is 115K and not 105K.

So what you are saying is not to redraw the 115K, and just leave the 140K offset against ANZ PPOR loan, and then use my 140K for IP deposit?

For the stat dec, it just said the money will be used to buy more property. so I guess yes (err to caution)?

In terms of contamination, what can I claim against my redraw, you mean the interest against the amount redraw from my PPOR, right? I am still trying to get my head around this.

Pretty much I want to buy IP without touching my 140K against PPOR and also not X-Coll with ANZ. ie buy another IP with 80% LVR with another bank, without me using any of my money but just get it from additional funds available from ANZ against PPOR. That is really my ultimate aim. Or that is just bad in terms of tax deductibility?

Drawing on Rolf's suggestion, get the loans done as:

525k PPor loan
115k Ip loan

Offset account 1 (linked to PPOR loan) - put your 140k
Offset account 2 (linked to Ip loan) - the 115k from ip loan account

Then use offset acc 1 for whatever you want , offset account 2 for *ONLY* IP purchase expenses.

Regards,

Jason

 

[kamchatsky]

Drawing on Rolf's suggestion, get the loans done as:

525k PPor loan
115k Ip loan

Offset account 1 (linked to PPOR loan) - put your 140k
Offset account 2 (linked to Ip loan) - the 115k from ip loan account

Then use offset acc 1 for whatever you want , offset account 2 for *ONLY* IP purchase expenses.

Regards,

Jason

Ah, that makes sense for me, so with this arrangement, there should be no X-Coll with ANZ then.

But then for second loan, given it is only 115K, and I leave 115K in offset, there should be no interest charged, until I decide to buy the property, and then I need to reapply for larger loan, and use that 115K as deposit/stamp duty etc?

If then I say I want to throw exactly 20K from my PPOR offset to IP purchase (to pay stamp duty etc), that amount would NOT be tax deductible, right? And it would cause contamination which then I need to keep good records? Sorry for all these questions but I do want to get it right first time.

 

[jrc77]

Ah, that makes sense for me, so with this arrangement, there should be no X-Coll with ANZ then.

But then for second loan, given it is only 115K, and I leave 115K in offset, there should be no interest charged, until I decide to buy the property, and then I need to reapply for larger loan, and use that 115K as deposit/stamp duty etc?

Yes - use the 115k as the deposit/stamp duty and apply for another loan (possibly from a different lender) for the remainder.

If then I say I want to throw exactly 20K from my PPOR offset to IP purchase (to pay stamp duty etc), that amount would NOT be tax deductible, right?

Correct. Not sure why you would do this - you just setup a IP loan account and offset for this purpose. I guess you might if the 115k isn't enough For the deposit.

And it would cause contamination which then I need to keep good records? Sorry for all these questions but I do want to get it right first time.

Think I addressed this above. And always keep good records!

Regards,

Jason

 

[Terryw]

I would be suggesting something different.

Get a IO loan with ANZ for the existing amount and and offset account with your cash.

Get a separate loan, a LOC, with ANZ for the $115,000 equity. This can be used later for a deposit on an investment loan.

If you get another standard loan and borrow the money and put into an offset then you run the risk of contaminating the loan. Once it hits the offset account it is no longer borrowed money and the interest may not be deductible even if you subsequently use it for investment purposes (FCT v Domajan). This is a strict interpretation and the ATO may not be this fussy, but better to be safe than sorry.

ps. never use the offset money for investment or you will be throwing away deductions. If you do need this money pay it into the loan and increase the LOC.