Should I stick to Westpac or change to NAB for a new IP

[flosed]

I am under contract to purchase a new IP.

Got 2 loan with Westpac at the moment. Amount more than 800K, rate 6.40% >80% LVR no LMI . No real structure , PROP's offset account as my transaction account. 105% loan for IP. I know it's not perfect, simple/easy for me at the moment. Will restructure when we upgrade PROP.

The problem is Westpac will only offer 6.56% for new IP loan (loan amount 180k) which make me unhappy. I know the loan amount is tiny. But the total amount including this one will be over 1M.

I shop around. NAB could offer 5.99 fixed one year rate if pay interest in advance with first year package fee waived.

What's your comments? Do you think I add one more IP to Westpac ? Or start over from NAB?

You know as a small amount in NAB, it's hard to negotiate further after first year honeymoon time. But most somersofter suggest we should not use one lender?


Option 1: start from NAB(or other leander, open to suggestion) now, adding more ip to NAB
option 2: stick to Westpac, adding more ip , negotiate harder , accumulate the loan , refinance big part of it(for ex. 1m out of 2m) later for better negotiation power.


Thanks!

 

[geoffw]

Option 3. Check with a mortgage broker. There may well be better options available.

If you do stick with Westpac make sure the new propery is not cross collateralised- it sounds as if it may be. While xcoll is very easy to set up it can be very hard to get out from.

 

[Rolf Latham]

I am under contract to purchase a new IP.

Got 2 loan with Westpac at the moment. Amount more than 800K, rate 6.40% >80% LVR no LMI . No real structure , PROP's offset account as my transaction account. 105% loan for IP. I know it's not perfect, simple/easy for me at the moment. Will restructure when we upgrade PROP.

The problem is Westpac will only offer 6.56% for new IP loan (loan amount 180k) which make me unhappy. I know the loan amount is tiny. But the total amount including this one will be over 1M.

I shop around. NAB could offer 5.99 fixed one year rate if pay interest in advance with first year package fee waived.

What's your comments? Do you think I add one more IP to Westpac ? Or start over from NAB?

You know as a small amount in NAB, it's hard to negotiate further after first year honeymoon time. But most somersofter suggest we should not use one lender?


Option 1: start from NAB(or other leander, open to suggestion) now, adding more ip to NAB
option 2: stick to Westpac, adding more ip , negotiate harder , accumulate the loan , refinance big part of it(for ex. 1m out of 2m) later for better negotiation power.


Thanks!

Hi Flos

Hard to say without a bunch more data, like your end game here, your future intent to purchase more, your current resources etc etc.

Almost like asking.....whats better for me , A Tarago or an MX5.


It looks to me like your core focus is rate rate rate, with structure being less important perhaps ?

Thats ok, for many they believe their finance structure is no different than buying a fridge, and will go to Hardly Normal, The Good guys, Bing Lee and then buy off the net from someone else.

If thats the case get away from the banks and use an online only lender like Ubank or State Custodians

ta

rolf

 

[flosed]

OK. I will explain my structure situation in more details:
PROP, loan 1, secure by PROP
IP1, loan 2: secured by PROP and IP1, 105%


IP2 to buy,loan3 80%: bank manager suggest I will deposit money on my loan 1 , use the money to pay 20% of IP2, claim this part of tax . So , I still get 105% in theory. Then actually it is secured by IP2.


My intention is out of cross collateralised when IP1/IP2 appreciate . I have around 200K cash at the moment.

I may upgrade PROP in 3 years btw.


Any suggestion ?

 

[Rolf Latham]

OK. I will explain my structure situation in more details:
PROP, loan 1, secure by PROP
IP1, loan 2: secured by PROP and IP1, 105%


IP2 to buy,loan3 80%: bank manager suggest I will deposit money on my loan 1 , use the money to pay 20% of IP2, claim this part of tax . So , I still get 105% in theory. Then actually it is secured by IP2.


My intention is out of cross collateralised when IP1/IP2 appreciate . I have around 200K cash at the moment.

I may upgrade PROP in 3 years btw.


Any suggestion ?

still cant choose between the Tarago and the MX5

but lets play a little

ARe you

1, Going to use any of your cash ?
2. How much POR debt you got left ?

ta
rolf

 

[flosed]

1, Yes I have to pay 20% of new IP using cash , LVR of my exiting 2 loan is more than 80% without LMI. Westpac will not do 85% no LMI any more
2, around 410K left.
Ta

still cant choose between the Tarago and the MX5

but lets play a little

ARe you

1, Going to use any of your cash ?
2. How much POR debt you got left ?

ta
rolf

 

[Rolf Latham]

1, Yes I have to pay 20% of new IP using cash , LVR of my exiting 2 loan is more than 80% without LMI. Westpac will not do 85% no LMI any more
2, around 410K left.
Ta

STOP

and get some decent advice

Dont take tax or structure advice from your banker...........

Here we are chasing rate, when you are about to burn thousands on tax dedns

This is just general advice coz once again, we dont know your full details

You should split your PPOR loan by the 20 % depsoit + costs , repay that new split, with your cash, and then redraw it

What is your marginal tax rate ?
ta
rolf

 

[flosed]

Thank you for the warning.

Yes, I will deposit money to my PPOR , then redraw it as investment purpose. Only difference is I don't want to split the PPOR loan. Cause split loan will break the 85% LVR deal with bank. So I prefer keep it untouched. I confirmed with my accountant. He said ATO is ok with this approach.



I am in 38% bracket.

STOP

and get some decent advice

Dont take tax or structure advice from your banker...........

Here we are chasing rate, when you are about to burn thousands on tax dedns

This is just general advice coz once again, we dont know your full details

You should split your PPOR loan by the 20 % depsoit + costs , repay that new split, with your cash, and then redraw it

What is your marginal tax rate ?
ta
rolf

 

[Rolf Latham]

So I prefer keep it untouched. I confirmed with my accountant. He said ATO is ok with this approach.

I am in 38% bracket.

ok, so I assume your PPOR loan is IO ?

38 c is certainly worth defending.

45 k tax dedn is worth 1100 a year.

By "simple structure" you may just saved more than .75 % on interest rate.

Interesting isnt it .....................


ta
rolf

 

[flosed]

Yes PPOR is IO.

Sorry for being slow.

Do you mean I have saved .75% already? Or you mean I can do better to save 0.75%?

I plan to do this for all my further IP purchase. Deposit money on PPOR, then redraw for investment purpose. Any risk you can see?

ok, so I assume your PPOR loan is IO ?

38 c is certainly worth defending.

45 k tax dedn is worth 1100 a year.

By "simple structure" you may just saved more than .75 % on interest rate.

Interesting isnt it .....................


ta
rolf

 

[tobe]

By saving after tax money, and then using for investment, you can then no longer claim an interest deduction on this amount. You will also not be making much of a dent into your PPOR debt.

Better to borow the deposit from your PPOR and the rest on the Investment property. Both loans are then tax deductable. The money in your PPOR offset is yours to pay down the PPOR debt (non deductable) or go to Bali with to spend your increased tax return.

 

[flosed]

To clarify ,I don't use after tax money directly. I deposit money to my PPOR debt before redraw it as investment purpose to pay my 20% deposit + solicitor + stamp duty etc.

That amount (along with 80% IP loan) is totally deductible from accountant.

Am I right?

By saving after tax money, and then using for investment, you can then no longer claim an interest deduction on this amount. You will also not be making much of a dent into your PPOR debt.

Better to borow the deposit from your PPOR and the rest on the Investment property. Both loans are then tax deductable. The money in your PPOR offset is yours to pay down the PPOR debt (non deductable) or go to Bali with to spend your increased tax return.

 

[Rolf Latham]

Yes PPOR is IO.

Sorry for being slow.

Do you mean I have saved .75% already? Or you mean I can do better to save 0.75%?

I plan to do this for all my further IP purchase. Deposit money on PPOR, then redraw for investment purpose. Any risk you can see?

the net tax benefit by doing the loan split is equivalent to a .75 % saving on rate approximately

ta
rolf

 

[tobe]

flosed ""To clarify ,I don't use after tax money directly. I deposit money to my PPOR debt before redraw it as investment purpose to pay my 20% deposit + solicitor + stamp duty etc.

That amount (along with 80% IP loan) is totally deductible from accountant.""

interesting, I wouldnt have thought so. Its certainly not making it easy for the ATO or your accountant to decipher.

To the ATO doing a redraw can change the purpose of the original loan, so redrawing funds from an investment loan to purchase PPOR means the tax deductability is lost.

Doing the same thing with an offset doesn't lose tax deductability.

therefore taking money offset against the PPOR isnt 'new borrowings' either applying the same logic, so that loan doesnt become tax deductable?

Your accountant may be able to argue the contrary, but I'd suggest keeping INV and OO loan seperate, just so everyones clear. If you do get audited, you dont even have to have the argument.


The benifit of the 85% Westpac loan is fairly small in comparision to the risk of the hassles of an audit. Westpac dont give you their cheapest rate when you got the LMI discount, so your new rate might go someway to compensate.

 

[flosed]

Thank you Tobe.

I do more search on this forum and happen to find your post on
http://somersoft.com/forums/showthread.php?t=70430

My situation is almost exactly the same of that guy. I guess you change your opinion recently.

BTW on that post Rob.G. point out only redraw from homeloan is deductible. Still , better if we split loan. As we are not accountant , I may ring ATO to further confirm.


tobe
Join Date: Mar 2007
Location: melbourne victoria
Posts: 1,107

either withdrawing from offset, or redrawing from your homeloan can be tax deductable if the purpose is one which produces assesable income.

 

[Aaron_C]

BTW on that post Rob.G. point out only redraw from homeloan is deductible. Still , better if we split loan. As we are not accountant , I may ring ATO to further confirm.

flosed don't bother doing that. They will give you different answers. Best to consult with the accountant about it so at least you can rely on his professional negligence insurance if he stuffs up. The ATO call centre has no accountability and they are filled with morons. Steer clear.

My 2c - as tobe advised SPLITTING the loans is the best policy because it makes accounting much easier. Otherwise if you start repaying the loan after the redraw, you can mix up funds and lead to problems and contaminate the interest deductibility.

 

[Rolf Latham]

Thank you Tobe.

I do more search on this forum and happen to find your post on
http://somersoft.com/forums/showthread.php?t=70430

My situation is almost exactly the same of that guy. I guess you change your opinion recently.

BTW on that post Rob.G. point out only redraw from homeloan is deductible. Still , better if we split loan. As we are not accountant , I may ring ATO to further confirm.


tobe
Join Date: Mar 2007
Location: melbourne victoria
Posts: 1,107

either withdrawing from offset, or redrawing from your homeloan can be tax deductable if the purpose is one which produces assesable income.

humbug

split your current PPOR RRHL into xx RRHL and 50 k RRIL .

repay the 50 k RRIL redraw from it to pay deposit and costs and its deductible, and easily accounted for.

You can still do it with your IO PPOR loan as one loan, ONCE ....................beyond that you are stuck. because then you cant allocate what gets repaid

Seek specific tax advice, and calling the ATO aint it !


Your biggest hassle is having allowed the banker to cross u on a 85 % lend.

Thats lethal for further progress with your "stick in the mud" flexibility.


ta

rolf

 

[tobe]

Goodness, well hmmph ah yes well that case was obviously diferent, um ahhh...

I guess my opinion has changed since then. I havent seen of any tax cases where it was allowed, or disallowed, whereas I have seen the opposite where the reverse was disallowed (redraw from INV to purchase OO).

By the way, Im not an accountant. I dont think the issue is whether its deductable or not, but more a tracking issue to show at audit. It would be a pyrric victory after the emotional and financial costs of an audit to be right.


The point is, its not any more work to set up a second loan, there isnt a significant discount youd be missing out on, and you would get a much clearer picture to present to your acocuntant and the ATO if you were audited.

If you do this a couple of times, and also use the same offset for other purposes, its going to get ugly at tax time.

 

[flosed]

Thank you Rolf. I don't think time allow me to do split at the moment. Should ask earlier. For sure I will try to restructure .

As to allocate repayment issue, I guess I can do with my PPOR loan as one loan more than once if I never repay ?(until restructure to split loan). Cause other purchase is coming very soon.

As you know my loan is IO .

humbug

split your current PPOR RRHL into xx RRHL and 50 k RRIL .

repay the 50 k RRIL redraw from it to pay deposit and costs and its deductible, and easily accounted for.

You can still do it with your IO PPOR loan as one loan, ONCE ....................beyond that you are stuck. because then you cant allocate what gets repaid

Seek specific tax advice, and calling the ATO aint it !


Your biggest hassle is having allowed the banker to cross u on a 85 % lend.

Thats lethal for further progress with your "stick in the mud" flexibility.


ta

rolf

 

[Rolf Latham]

you are sounding like a broken record

im sure that your bankie can get the split done in record time, if not, then your 80 % purchase loan is in big trouble.

Another OBVIOUS option is to go for a 90 % lend on the new place

With doing the repay and redraw - Once you have done it once, and then make another repayment, you will have to allocate the second repayment against the old PPOR option and the IP1 portion

have fun

ta
rolf