Refinancing to P & I and remove LOC

Discussion in 'Property Finance' started by Collector, 5th Oct, 2012.

  1. Collector

    Collector Member

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    I purchased a villa as an investment 3 years ago.

    I financed the villa via:

    $100,000 LOC secured against PPOR for 20% deposit and cost
    $312,000 I/O loan with bankwest - rate tracker

    The purchase price of the villa was $392,000

    The current value is $460,000


    I'm looking at refinancing to consolidate the loan and LOC.

    I spoke to ANZ and they can refinance the Bank West Loan and give me $96,000 to pay off the LOC.


    Are there any tax implications in doing this?
     
  2. tobe

    tobe Mortgage Broker

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    the tax implications of changing to P&I is you will slowly lose the tax deduction as you pay back the principal and pay less interest.
     
  3. Peter_Tersteeg

    Peter_Tersteeg Finance broker/strategist

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    Will you still have a loan against your PPOR? If so, you would probably be better off to keep the new loan as interest only and direct the savings to paying off your non deductable PPOR loan.

    The best structure will depend on your extende d financial circustances and your longer term goals.
     
  4. Collector

    Collector Member

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    Yes I realise that, I am more concerned about the bank giving me $96,000, how will the tax office see that - even though I am going to use the funds to pay off the LOC - which atm I claim deductions.


    I then have the option of closing the LOC or using it again in the future to purchase again
     
  5. Collector

    Collector Member

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    Have no loan on PPOR only LOC linked to the investment prop
     
  6. tobe

    tobe Mortgage Broker

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    the ato will assume, and you will keep records to show, that the 96k was used to repay/refinance your LOC, drawing a direct link with the original investment purchase.
     
  7. Peter_Tersteeg

    Peter_Tersteeg Finance broker/strategist

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    If the LOC has been used solely for investment purposes (ie funding your IP purchase), then all you're doing is borrowing using an investment loan to pay down an investment loan.

    Same use at both ends, so no big deal.
     
  8. Rolf Latham

    Rolf Latham Member

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    my question is why ?


    is there a structural end game, ie you want to sell your ip etc ?

    ta
    rolf
     
  9. BMan

    BMan learner property investor

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    would it not keep everything tidier and easier to manage with 1 loan than having 2 loans? and if you can do it why not.?
     
  10. Rolf Latham

    Rolf Latham Member

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    Much comes down to the actual needs of the borrower.

    If they arent going to buy more IPS and their CRAA file isnt t busy, then the "housekeeping" being looked at here can be valid.

    Its not unusual for clients to want to place the PPOR secured deposit loan away from the their PPOR and onto an ip.


    But I would counsel the original poster to have a look at their motivation, AND the lenders motivation and apply some sanity checks

    the original purchase loan at 80 % LVR was 312 000

    add 96 000 which ANZ will provide to the 312 000 and I get 408 000 on a value of 460 000 = 89 % lvr.

    So either
    • we have new LMI to pay
    • The loans are all crossed, or
    • the new loan simply replaces the LOC


    none of those 3 options make sense on the surface, but we know little of the Ops position

    ta

    rolf
     
  11. Terry_w

    Terry_w Member

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    Refinancing one loan with another doesn't usually change or effect deductibility.
     
  12. JohnA

    JohnA Member

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    If you have an IP loan of 120k and a LOC of 80k(at max) used to reno that IP. Can you refinance and get 1x 200k loan - esp if you can get 3 year fixed at 5.3%?
     
  13. Terry_w

    Terry_w Member

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    You can. But be careful if each loan had a different purpose.