Using equity in IP, put into PPOR offset

Discussion in 'Property Finance' started by testingw00, 31st Dec, 2013.

  1. testingw00

    testingw00 Member

    Joined:
    10th Jan, 2011
    Messages:
    21
    Location:
    Sydney, NSW
    Hi all,

    Current situation:
    Property 1
    - Is an OTP and will be our PPOR when completed by March
    - Will be opting to get an IO loan with offset attached.
    - Will rent out this property in 7-10, years time when we eventually move to a bigger home as our family expands
    - The loan on property 1 will be under my name only.

    Property 2:
    - Currently living in a 2 bedroom unit as a current PPOR. Will convert to IP as soon as property 1 is complete and we move out.
    - Currently IO loan, no offset.
    - Property 2 has $215k owing. Estimated value of property is $360k.
    - Property 2 loan is under my wifes name only.

    Is it possible to use the equity in property 2 and 'park' the funds into an offset on property 1? If its possible, what would be the best way to structure this?

    I don't want to x-coll and our main goal at the moment is to reduce our monthly repayments on property 1 down to $1 per month.

    I'm hoping there will also be no tax disadvantages or even some advantages in doing this.

    Thanks all, and have a happy new year!
     
  2. marg4000

    marg4000 Member

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    Well, you COULD do this but it is hard to see any advantage.

    You would pay interest on the money borrowed but save interest on your PPOR loan. The interest would not be tax deductible to the IP so the outcome would be neutral at best. As you will probably incur fees, you will be behind.
    Marg
     
  3. Terry_w

    Terry_w Member

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    You can't park equity, only cash. To get cash you would have to borrow. To borrow and place the money in an offset account attached to your main residence wouldn't be investment related and so the interest would not be deductible. So Marg's point applies - you could do it, but there is no tax advantage.

    What you should be doing is changing the loan to IO now, with offset, and then stop paying it down (you hopefully have done this already).
     
  4. testingw00

    testingw00 Member

    Joined:
    10th Jan, 2011
    Messages:
    21
    Location:
    Sydney, NSW
    Hi,

    Thanks for the replies and clarification.

    OK, seems quite clear what can and cannot be done.
    My current loan structures seems to be the most optimal as it can be for now. I've got offsets all setup and I'm now awaiting for the completion of the OTP.

    Thanks and have a great new year!
     
  5. The Y-man

    The Y-man Member

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    Are the interest rates on the 2 prop loans the same?

    The Y-man