Refinancing query

From: Felicity W.


Hi all
I've had a search of the archives, but still haven't come up with an answer for the following.
Say you start off with a home and an IP, both worth $100k and with finance to 80% (I'm missing out costs etc in this example, to simplify!).
So you would have:
Home - value 100k, loan 60k
IP1 - value 100k, loan 100k

Then down the track the houses have gone up in value, so now it's
Home - value 150k, loan 60k
IP1 - value 150k, loan 100k

Now it's time to buy another IP, also valued at 150k. At 80% that means a total of 360k borrowings.
My question is - how can that loan be split?
does it have to be:
Home - value 150k, loan 110k
IP1 - value 150k, loan 100k
IP2 - value 150k, loan 150k
ie put all the extra borrowings against the home Line of credit/loan
or can it be
Home - value 150k, loan 60k
IP1 - value 150k, loan 150k
IP2 - value 150k, loan 150k
ie split the loan to maximise tax advantages.
I know this is cross collateralising which isn't always the best option, but it's a question that has bugged me for a while!
Keep smiling
Felicity :cool:
 
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Sim

Administrator
Reply: 1
From: Sim' Hampel


On 2/14/02 6:55:00 AM, Felicity W. wrote:
>
>My question is - how can that
>loan be split?
>
>ie split the loan to maximise
>tax advantages.

It makes no difference to tax. It is the purpose of the funds which determines deductibility. So, even if the new funds are secured against your PPOR, but used to purchase an IP, then the interest is still deductible.

My opinion is that it really doesn't matter, but you should try and structure it so that you are not cross-collateralised if you can.

Try refinancing to something that looks like this:
Home - value 150k, split loan, 60k for original PPOR loan (non-deductible), 60k equity LOC to be used for deposits
IP1 - value 150k, split loan, 100k for IP1 and 20k equity LOC for deposits
IP2 - value 150k, loan 120k + 30k deposit from one of the LOCs.

And you still have 50k of equity available for further purchases if your DSR allows.

Tax is not affected in any way, and you get the flexibility of a non-cross-collateralisated portfolio.

 
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Reply: 1.1
From: Dale Gatherum-Goss


Hi Felicity!

Sim is, unfortunately for you, right in what he says . . . sorry.

Dale
 
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Reply: 1.2
From: Rolf Latham


Sim

Thats How I would see it too.

I understand theres an opening for a sub contract broker :eek:)

Ta

Rolf
 
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Sim

Administrator
Reply: 1.2.1
From: Sim' Hampel


I've learned from the best Rolf ;-)

 
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