What type of loan would be best?

Discussion in 'Property Finance' started by INVSTOR, 18th May, 2012.

  1. INVSTOR

    INVSTOR O+

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    I have a variable loan,interest only with a bank for $200,000, value of property is a lot higher. I want to borrow money for:
    underground power $1000/year over next 4 years due with rates
    carport (possibly build within the next year or may not bother) $5000
    new fence/gates $3000 - $5000?

    What would be the best type of loan to take out? Would I have to take out a whole new loan for all amounts or just additional to be able to claim interest?
     
  2. Rolf Latham

    Rolf Latham Member

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    how long is the string again : )

    depending on the lender you are with, a loan that allows you to park the unused funds back in the loan would be ideal.

    a loan for non structural home improvements

    can be a variety of products depending on your lender

    If you are on a sad rate, it may be worth looking at moving

    ta

    rolf
     
  3. Aaron_C

    Aaron_C Finance Broker

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    Oh this is an easy deal assuming your income is good. Try getting a line of credit to withdraw equity in the property in a split account and use that for the improvements.
     
  4. jonmardell

    jonmardell Mortgage Broker

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    a loan with an offset account or redraw. You could borrow the extra funds and either leave it in the offset account or pay back in to the loan and redraw later when you need it. This way you would not be paying interest on it until you use it. If you have not reviewed your loan in the last few years this might be an opportunity to get a better rate while you do the increase.
     
  5. Terry_w

    Terry_w Member

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    Depends on whether the property is an investment or not. This could ruin the deductibility of interest.

    I would prefer a LOC myself for a situation like this.
     
  6. INVSTOR

    INVSTOR O+

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    More info:

    Already I have a (top up) loan borrowed against equity in another property (property 1) for $100,000 and another top up loan for $20,000. Then I sold the second property when it doubled in value and all but paid out the loans + a I have a redraw on original property of $50,000 (which I will never use as it won't be deductable) so I'm trying to tidy things up, want to get rid of the three amount listed above as they are basically useless as they will never be deductable. (I realise also that banks view that I have loans of $170,000, even though they won't be used, which affects my serviceability) So I know borrowing part of the money again won't be a problem but I want to know the best way to set it up to keep the A T 0 happy, which seems like a LOC will. I guess that would be a whole new loan? So as Rolf suggested, may be worth shopping around as I'm up for fees anyway with existing bank (NAB) for changing the type of loan??? Been with them for almost 3 yrs.
     
  7. Peter_Tersteeg

    Peter_Tersteeg Finance broker/strategist

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    The carport and fence look like a simple top-up of the existing loan. Given it appears they're for the same property as the existing loan, the purpose of the loan is essentially the same purpose of the top-up, so in the absence of further information there doesn't appear to be an issue with using redraw instead of an offset account.

    I'd be questioning the idea of using your equity to pay the power bill. If you can't afford the power bill of $1,000 I'd say there's a problem. If this is an investment loan it could also put the loan deductability at risk in many cases.
     
  8. INVSTOR

    INVSTOR O+

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    It's not a power bill. The whole suburb is changing from overhead powerlines to underground power, and being billed over 4 years by the council. ($1000 per year, $4000 in total)
     
  9. Peter_Tersteeg

    Peter_Tersteeg Finance broker/strategist

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    Sorry, I misinterpreted. In that case it's an improvement so the same applies as to the fence, etc. A small top-up would likely suffice to cover all this.
     
  10. jonmardell

    jonmardell Mortgage Broker

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    It does not make a difference cause all of those expenses are on the property itself.
     
  11. INVSTOR

    INVSTOR O+

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    So I could get a top up loan, and draw from it as I need the funds?
     
  12. Terry_w

    Terry_w Member

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    It would possibly destroy deductibility if funds are borrowed and placed in an offset account (which is a mere savings account and not a loan account). If the funds are later used to invest then the interest may not be deductible.
     
  13. Peter_Tersteeg

    Peter_Tersteeg Finance broker/strategist

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    Yes, do a simple increase on the existing loan (unless there's a compelling different reason to refinance). Leave the funds in redraw and simply draw them down as you need them. Only use the funds for improvements on the property and you'll have no issues with deductability if it applies.

    The only downside is that your lender may charge you redraw fees, but most don't these days.
     
  14. BMan

    BMan learner property investor

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    could you use the current funds in the redraw (50k) as it will be turning it into deductible debt then.? rather than a topup which would require a bit more paperwork aswell

    also that 50k in redraw could be used for a deposit on another IP and it would then turn into deductible debt but you would want to create it as a seperate loan...

    im sure a broker would be able to solve all these issues and make it all tidy