transistion from PPOR to a new PPOR making old investment

[atti]

Hello , this is mum's situation. her current house .
she bought as a first home in January 2009 on P&I, 100 offset standard variable loan .

1st property total purchase $ 350 000
loan 190 000
first home owners grant 18 000
cash deposit 142k

current loan 178 k to date

now she would like to make this first home an investment property and purchase a brand new property (town house in good location) to live in as PPOR @ 390k, what is the best way to finance strategy for on-going investing?

it is posible to re-finance that 142 cash deposit + equity gained in last year and a half to put in new townhouse PPOR so she doesnt have to borrow much to buy this new ppor?

worth a mention is she will probably live in this place for next 25 years so i advise her to borrow less as possible if any at all as she have another 150k cash on top in the Offset account.

i am trying to point to her that theres no tax deduction on loans on your ppor. and the cost of re-financing her 1st home would be worth it in long run, to monthly repayments of interest only 90% LVR or 80% LVR as long not secured to her new house.

 

[tobe]

Has she done the numbers on keeping the first home as an investment? perhaps it might be better to sell her current PPOR, buy the new one, and get finance for another better suited investment property down the track.
If it is a good investment and she wants to keep it, she can only claim a deduction on the original loan amount. She might look into debt recycling and increase this deductable loan over time, if she is comfortable with that.

 

[jrc77]

Atti,

Please be aware that whether or not the interest on a loan is tax deductable is determined by the purpose for which you borrowed the funds, not which property it is secured against.

In your Mum's case any new borrowing she does to purchase this new PPOR won't be tax deductable - even if this is secured against the existing property (that will be the IP). Whats more, if she has made extra repayments to the existing loan and then "redraws" it purchase the new PPOR then the redrawn part will not be tax deductable either.

However if the "extra repayments" have been put in to an offset account, then she can withdraw this and the original loan purpose is maintained.

Regards,

Jason

 

[PeterC]

can only get deduction on the interest charged on remaining loan (178k) if you change to investment. that leaves a lot of equity in the IP that is better put in the offset of the new PPOR

id get new PPOR with 80% (or higher if needed) LVR and 100% offset. sell the current PPOR. put all money into offset. then look into new IP.

 

[Rolf Latham]

A big ? is


whats mums taxable income ?

AS alluded, there may be ways to make it work with debt recycle and the like, but genera;;y this work best woth borrowers near the higher brackets

ta
rolf

 

[atti]

she owns bugger all under 24k a year. if rent out this house probaly total 40k income and alot of mortgage repayments

 

[Brett IP]

How is it that she can borrow such a high figure for another PPOR on just 24k a year?

She will have to do the calculations in regards to selling, taking into account the selling costs and repurchasing costs, but given the equity and inability to claim much on the current PPOR (soon to be IP) then selling and repurchasing seems the only option

 

[atti]

she aint borrowing 90% more like 60% , i dont want her to sell because these very good potential capital growth in both these suburbs for the long run.