To fund the IP we are taking a split loan of the equity in our PPOR, secured against the PPOR which will be used for deposit & purchase costs, and then a further loan secured against the IP @ 80%LTV for the difference, effectively allowing us to borrow the entire purchase costs thereby maximizing interest deductibility.
We have made, and had accepted, an offer on an IP but as yet there is no S32 so nothing is concrete.
As the deposit & costs are coming from equity, we were thinking of ‘activating’ that loan now so that the deposit & costs are in the bank ready to move as soon as we sign the contract.
I was about to instruct the bank to process the deposit loan, as it is secured against the PPOR and takes that total loan to 80% LTV of PPOR then it shouldn’t matter that we have not signed a contract for the IP yet.
However, I just had a thought. If the bank process that loan and the proceeds are deposited into our offset current account, even thought the loan is for investment purposes, does the fact it hits our current account first spoil the deductibility? Or is it ok as long as everything is receipted to amount to the original loan amount?
Eg. I’m hoping that say this loan is for $100k, we take the loan out now (without a signed contract on an IP), the monies go into our current account (I relise we could not deduct interest payments from the tax bill until we actually have an available rental property). We then pay the conveyancing, stamp duty and inspections from what is now our own money. Whatever is left of the $100k goes as deposit when the IP contract is signed. The balance is then made up of the new loan secured against the IP.
Does the fact the first loan against the PPOR technically hits our pockets first make it non-deductible? What I mean is, do we need the bank to pay the deposit & costs direct from the loan account in order to keep it all deductible?
I just want to check I’m not making a costly mistake by trying to get up front funds for purchasing costs.
Thanks.
We have made, and had accepted, an offer on an IP but as yet there is no S32 so nothing is concrete.
As the deposit & costs are coming from equity, we were thinking of ‘activating’ that loan now so that the deposit & costs are in the bank ready to move as soon as we sign the contract.
I was about to instruct the bank to process the deposit loan, as it is secured against the PPOR and takes that total loan to 80% LTV of PPOR then it shouldn’t matter that we have not signed a contract for the IP yet.
However, I just had a thought. If the bank process that loan and the proceeds are deposited into our offset current account, even thought the loan is for investment purposes, does the fact it hits our current account first spoil the deductibility? Or is it ok as long as everything is receipted to amount to the original loan amount?
Eg. I’m hoping that say this loan is for $100k, we take the loan out now (without a signed contract on an IP), the monies go into our current account (I relise we could not deduct interest payments from the tax bill until we actually have an available rental property). We then pay the conveyancing, stamp duty and inspections from what is now our own money. Whatever is left of the $100k goes as deposit when the IP contract is signed. The balance is then made up of the new loan secured against the IP.
Does the fact the first loan against the PPOR technically hits our pockets first make it non-deductible? What I mean is, do we need the bank to pay the deposit & costs direct from the loan account in order to keep it all deductible?
I just want to check I’m not making a costly mistake by trying to get up front funds for purchasing costs.
Thanks.