Shuffling mortgages around?

[davidw89]

Hi,

I have a PROR, circa $200k outstanding mortgage. Is it possible to take on extra mortgage from my investment property, as property prices have increased in my area, say to the tune of $100k (will try to keep at least 20% equity so as not to attract LMI) and use that fund to pay down the PROR, thereby increasing my tax-deductible debt? I'm with NAB for both home loans.

Thanks,
David

 

[D.T.]

No. Purpose of the funds dictates deductibility, not their source. Paying down mortgage isn't a deductible purpose.

 

[davidw89]

So does this mean that the Bank won't give you a Line of Credit from your investment property just to pay down your other debt or would there be no point in doing it?

 

[D.T.]

They'd probably do it. But it'd be completely pointless.

 

[Mick C]

Bank will give you the loan- but you won't be able to claim the interest deduction from the ATO point of view as the "purpose" of funds is to pay down a personal debt.

Some things can't be reserved unfortunately...unless you sell or switch properties etc...

So that you dont make things worst, you may consider
1. Changing loan to i/o
2. Keeping any spares funds in an offset account

 

[Terry_w]

Hi,

I have a PROR, circa $200k outstanding mortgage. Is it possible to take on extra mortgage from my investment property, as property prices have increased in my area, say to the tune of $100k (will try to keep at least 20% equity so as not to attract LMI) and use that fund to pay down the PROR, thereby increasing my tax-deductible debt? I'm with NAB for both home loans.

Thanks,
David

It won't be deductible. s8-1 ITAA97

 

[Rolf Latham]

There are other, legit and often slower ways of what you are looking to do.

Any decent financial Planner can put in place a debt recycle strategy that will do what you want

ta
rolf

 

[davidw89]

My mortgage on the investment property is already interest only (4 years remaining). I pay Principal & Interest on the PROR and I pay extra on the weekly repayment. I'm trying to clear the PROR ASAP. I have a small share portfolio that I could perhaps use but I'm not on a high marginal tax rate to justify debt recycling.

 

[Rolf Latham]

I pay Principal & Interest on the PROR and I pay extra on the weekly repayment. I'm trying to clear the PROR ASAP. I have a small share portfolio that I could perhaps use but I'm not on a high marginal tax rate to justify debt recycling.

If there is deemed benefit in shuffling debt as you had intended, its very likely a debt recyle strategy would benefit you.

What will you do with the PPOR in the future ?

Will you ever likely rent it out ??

ta
rolf

 

[Terry_w]

What state is your investment property in? (ie state as in location)

 

[davidw89]

Sydney, NSW.

 

[Brady]

As mentioned above debt recycling could likely work very well for you.

LOC draw against IP - use this LOC to pay all INVESTMENT expenses excluding interest (rates, maintenance, insurance). DONT use this for any personal expenses. Then all the money that is usually used to pay these expenses put into your PPOR loan.


Rolf also alluded to questioning if your current PPOR will be an IP later. As paying off the principal might not be the best option. Could be better having IO for PPOR and placing all principal and extra repayments into an offset against the PPOR, saving you the same amount in interest... but preserving the principal if it becomes an IP later, that way maximising your deductions.

 

[Terry_w]

Sydney, NSW.

Generally no exemptions that could assist in NSW

 

[davidw89]

As mentioned above debt recycling could likely work very well for you.

LOC draw against IP - use this LOC to pay all INVESTMENT expenses excluding interest (rates, maintenance, insurance). DONT use this for any personal expenses. Then all the money that is usually used to pay these expenses put into your PPOR loan.


Rolf also alluded to questioning if your current PPOR will be an IP later. As paying off the principal might not be the best option. Could be better having IO for PPOR and placing all principal and extra repayments into an offset against the PPOR, saving you the same amount in interest... but preserving the principal if it becomes an IP later, that way maximising your deductions.

Hi, would like to pay off my PROR as soon as possible.

What do you mean LOC draw against IP? If you take out additional equity from the property (if bank allows), and try to pay off your PROR mortgage, it wouldn't be tax deductible? But I guess the upsize is that you might not have a PROR loan?

 

[Brady]

Hi, would like to pay off my PROR as soon as possible.

What do you mean LOC draw against IP? If you take out additional equity from the property (if bank allows), and try to pay off your PROR mortgage, it wouldn't be tax deductible? But I guess the upsize is that you might not have a PROR loan?

Not that way, can't just draw funds down and payoff PPOR. use LOC for investment expenses. So instead of using your cash for these, keep your cash to reduce PPOR (either off the balance or offset) and use the LOC.