What should I do with extra PPOR equity

[jward101]

Hi folks,

I had a walk through valuation done on our PPOR for our first IP purchase.

The loan stucture will be PPOR, Equity Split and IP Mortgage (3 loan products).

Within 6 months I'm estimating we could secure another IP with not much more than value-adding on our new IP.

With all that in mind do I "release" as much equity from our PPOR into our split loan now or is it a matter of only taking what I need and getting the rest later? I think I know what the answer but thought I'd check in with the brainstrust.

Other things like, "how then is deductibility affected" is one other question I'm still looking at if say only half of my equity (in 1 loan product) is applied against the IP.

 

[Greg Reid]

My general view is borrow now, or at least set up the maximum facility you can as who knows what tomorrow will bring. This is normally limited to an 80% LVR due to restrictions of 'cash out' above that by the mortgage insurers and lender policies (and cost).

That said, a caveat is to make sure you still have servicing capacity to borrow for your next purchase.

I would set up a separate LOC facility for this for future investing, mainly to keep it separate and easy for accounting and tax reconciliation.

The deductibility of the interest is determined on use of funds, not what the security is, so if you use to buy an investment asset, interest is tax deductible. If you use to buy a private asset or expense, non deductible.

 

[Jamie M]

With all that in mind do I "release" as much equity from our PPOR into our split loan now or is it a matter of only taking what I need and getting the rest later? I think I know what the answer but thought I'd check in with the brainstrust.

I would - there's no huge risk in doing so providing you're not tempted to spend the surplus equity on something non investment related.

I'd look to cash out at 80% - use what you need and store the rest in your equity release loans redraw for future investment use.

Cheers

Jamie

 

[Redom]

Hi folks,

I had a walk through valuation done on our PPOR for our first IP purchase.

The loan stucture will be PPOR, Equity Split and IP Mortgage (3 loan products).

Within 6 months I'm estimating we could secure another IP with not much more than value-adding on our new IP.

With all that in mind do I "release" as much equity from our PPOR into our split loan now or is it a matter of only taking what I need and getting the rest later? I think I know what the answer but thought I'd check in with the brainstrust.

Other things like, "how then is deductibility affected" is one other question I'm still looking at if say only half of my equity (in 1 loan product) is applied against the IP.

Sounds like its all set up well. Best to take the funds now and avoid another credit hit 6 months down the track. If its all for investment use, can set it up as one split or multiple (per purchase).

Cheers,
Redom

 

[Rolf Latham]

if your IP is fixed or has LMI involved, make sure you actually service for the IP secured top up your are planning, AND that the lenders policy allows it to give it to you.

Standard best practice risk management demands you draw the PPOR to the appropriate LVR before buying an IP for all the reasons mentioned above and a few more.

ta
rolf

 

[jward101]

Just reporting back in. Have taken the full amount available out (80% PPOR LVR) and am almost through a purchase transaction.

I should have completed Equity Split a little earlier as I've had to push our bank's loan area to speed up the process just to avoid dipping into PPOR Offset reserves for initial offer deposits.

Thanks everyone in this thread and via PM. Final outcome is the 3 loan products too rather than the LOC suggested by Greg.

 

[Terry_w]

Thanks everyone in this thread and via PM. Final outcome is the 3 loan products too rather than the LOC suggested by Greg.

Greg knows what he is talking g about and suggested the Loc cor amreason. Hope you sought tax advise.