Moving Investment Property Loan to Another Bank

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  [Deactivated] on 03/04/2015 - 01:23

  This was my strategy too. I wanted to move out of my current place, refinance my house and use it to buy another PPoR with the cash, rent out the oold one for negative gearing. I was informed this is not possible for tax purposes as i am pulling money out to fund a PPoR and therefore cannot claim on tax. correct me if im wrong.

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  qazwsx on 03/04/2015 - 05:28

  +1

  You can refinance a loan and maintain tax deductibility. However deductibility depends on the initial intent of the funds.

  E.g.
  You buy IP for $1m
  You take $800k loan from Lender A (80% LVR)
  You then refinance with Lender B by taking a $950k loan (95% LVR); the excess $150k is used to fund your PPOR.

  Tax deductibility:
  The $800k from Lender A was taken with the intent to fund the IP, therefore tax deductible.
  The $950k refinance with Lender B needs to be seen in two parts:
  (a) The initial $800k was refinanced from Lender A to Lender B - since it is just refinanced, this remains deductible.
  (b) The additional $150k you pulled out is for your PPOR and therefore not deductible.
  To summarise, it is the intent of the funds (not the asset the loan is being secured with) that determines tax deductibility.

  So with respect to the $950k loan, you need to apportion the interest on that loan between the $800k component (which would be deductible) and the $150k component (non deductible).
  Furthermore, since it is one loan facility you cannot elect to choose where your repayments go - repayments must be apportioned across both components. E.g. if you paid down the principal amount by $9,500, then $8,000 should be applied to the $800k component and $1,500 should be applied to the $150k component (stops you paying down the $150k component quicker than the $800k component and artificially boosting your tax deductions).

  A reminder in relation to tax deductibility for IPs: the property must be made available for rent. If it is not available for rent (e.g. because you are carrying out renos), then it is not deductible - in this case you should investigate if the interest costs can be capitalised onto the cost base or not.

  • 

    daptal on 03/04/2015 - 11:11

    qazwsx …. Thanks heaps for your excellent explanation … really appreciate it :)

    More specific details of my case are as below -

    I am moving out about 90K from my PPoR loan's redraw to use towards 20% deposit and stamp duty required for the purchase of the IP. Will this 90K have tax benefits as it is being used for investment purposes?

    This was the reason for my original post as I want to return as much as possible of the 90K back to my PPoR loan whilst maximizing my IP loan.

    Thanks again.

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  Mad Max on 03/04/2015 - 09:58

  +1

  You would be better off refinancing the IP loan for the same amount with the capacity of paying interest only. Then have another separate loan for PPOR and paying it off quickly with all the income from the IP rent. Once PPOR loan paid off you can start paying more on IP loan.

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  ujwols on 03/04/2015 - 11:02

  +1

  Why did you buy your IP with 80% LVR in the first place if you intend to refinance it shortly after to another lender at 95%? Why didn't you with the 95% lender directly ?

  • 

    daptal on 03/04/2015 - 11:14

    Hi … Things happened in a rush (also 30 day settlement) and my current bank was quick to get things moving so I chose the safe option rather than trying someone new and risking "unknown" delays
    Thanks

    • 

      ujwols on 03/04/2015 - 11:45

      If you have a good broker, you would be able to get full approval in max 5 business days.

      For my recent purchaseI got it approved in just 2 days.

      • 

        daptal on 03/04/2015 - 19:28

        Hi Ujwols …. thanks for your suggestions … if you don't mind can you tell me which bank you went with for your IP

        Cheers

      • 

        ujwols on 03/04/2015 - 21:10

        @daptal:

        NAB broker (previously Homeside)

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  [Deactivated] on 04/04/2015 - 07:21

  If you haven't settled yet, another option could be (this is what I did and I'm with ANZ):

  Borrow 100% of the IP loan using the equity in your PPOR to avoid paying mortgage insurance. Then, as Maxi above stated - Set your IP loan as interest only using all the rental income to first pay of your PPOR. Once PPOR loan is paid off, you can start paying more on IP loan.

  Take into consideration that if you take this option, in future if things go wrong, you could lose both properties.

  • 

    Steptoe on 08/04/2015 - 21:10

    Assuming OP doesn't have that much equity.