Refinance Mortgage & Get New Loan

Lozbargainy on 15/12/2020 - 23:00

Hi all,

Thought of asking the "pros" firstly prior to speaking with "mortgage broker"

Situation is as follows:
1- Have a current mortgage roughly $250K outstanding. This is our current PPOR - call it home #1.
2- Looking to buy another property to live in, around $500K, call it home #2.
3- Home #2 will be our PPOR with the intent to rent home #1.

Questions are:
1- Should I apply for new loan for home #2 for $500K exactly, or $750K (assume no equity) to consolidate home #1 into the new loan, is that doable?
2- Is it possible to put something in the contract for home #2 to say subject to finance and rent of home #1?

TIA!

Financial

Comments

  • MS Paint on 15/12/2020 - 23:04

    Do you want to negative gear home #1 for tax purposes?

    • ozbargainy on 15/12/2020 - 23:09

      Yes, most probably home #1 will be negatively geared due to increment of strata levies this year, went from $620 to $1250 per qtr

      • MS Paint on 15/12/2020 - 23:12
        +2

        You can't negative gear YOUR PPOR.
        Speak to an accountant about setting this up because it could be messy with valuations, deductions and eventually CGT.

        • ozbargainy on 15/12/2020 - 23:16

          But home#1 won't be the PPOR when home #2 is purchased?, basically the intent is to swap home #1 with home #2

          • MS Paint on 15/12/2020 - 23:18

            @ozbargainy:

            most probably home #1 will be negatively geared

            I might not have been clear or misinterpreted your reply.

            When you move into home #2 your only option is to negatively gear home #1 not #2

            • ozbargainy on 15/12/2020 - 23:27

              @MS Paint: Thx, yes home #1 will be rented so can be negatively geared. Home #2 will be the PPOR

  • mortgagebroker on 15/12/2020 - 23:50
    +1

    It is based on the purpose of the funds.
    As the new borrowing is not for investment purposes, you cannot claim the interest.
    The only funds that will be for investment purposes will be the 250k, unless you have the money sitting in an offset?

    Speak to an accountant and broker to make sure you have the correct structure going forward for your future goals and objectives.

  • streetsmart on 16/12/2020 - 00:40
    +1

    we have done the following before, somewhat similar to what you are trying to achieve:

    1) Refinanced Home #1 which was our PPOR that time but with 2 portions - Portion 1 is 2/3 of the loan amount declared as owner occupied, Portion 2 is 1/3 of the loan amount inclusive of the equity declared as investment loan. Portion 2 is for the intent of pulling it out and using it as a downpayment to our planned Home #2 which is going to be our PPOR.

    2) Went ahead to purchase Home #2, took owner occupier loan, used Portion 2 loan as part of downpayment, made Home #1 investment property.

    3) Home #1 loan structure changed to pure investment loan when we refinanced. When it became investment property, the bank did not ask us to refinance it so Portion 1 is not owner occupier rate, looks like they dont care so long as you are on top of your payments. Can't remember what our accountant did in terms of our tax claims, I am 80% sure our Portion 2 interest cannot be claimed that FY as it became part of an owner occupier loan essentially.

    4) As for your 2nd question on the offer conditions, I don't think any seller would accept the subject to Home #1 getting tenanted. I don't think that is fair given the market situation now unless no one else is offering for the property and seller is desperate to dispose. If I am the seller and I see that condition, I would think twice because you don't know when you can get a tenant, it can be weeks, months, I know someone with vacant property since August of this year. Given that, I will miss out on prospective buyers. Sellers do not want buyers with so many conditions coz there is a risk the deal won't go ahead. Personally, I would go for someone with unconditional offer even if the offer is lower than someone with conditions. Same goes for property agents, they just want the deal done quickly and move on.

    • ozbargainy on 16/12/2020 - 09:48
      +1

      Thx for the detailed response. So basically U firstly refinanced 1st home declared as a partial investment property and bought the 2nd home as PPOR in full, got it

      For the rent condition, we live in Perth and at the moment what I hear is the people are chasing the rentals cause of the apparent mining boom

      Thanks!

      • streetsmart on 16/12/2020 - 16:23

        Yes that is right. But yea, please check with your broker and accountant on what is gonna be best for you.

  • Meho2026 on 16/12/2020 - 02:59

    How is your current loan set up?
    Ideally you have 20% equity and the rest in an offset.
    If not, refinance first to make it like that before you buy anything else.
    Then when you buy property 2, take all the money out of the property 1 offset.
    Set up property 2 the same, 20% deposit, remainder of funds in property 2 offset account.

    • ozbargainy on 16/12/2020 - 09:50

      Thx, home #1 is on variable loan with 100% offset

      • Meho2026 on 16/12/2020 - 14:15
        +1

        Also get your first home independently valued when you move out. It will become subject to CGT when you buy the second property as your PPR.
        The valuation of the property 1 will then be used as the base cost for calculating CGT if you sell it later.

  • avoidfullprice on 16/12/2020 - 08:18

    If not, refinance first to make it like that before you buy anything else.

    Check with an accountant on that. Otherwise your comment about 20% equity rest in offset for current PPOR makes more sense.

    Not advice here.

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