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Equity loan from PPOR soon to be IP contaminating existing loan?

Discussion in 'Real Estate' started by thevampiress, 26th Mar, 2009.

  1. thevampiress

    thevampiress New Member

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    Canberra, ACT
    Hi there,
    I am about to apply for an equity loan from my current PPOR to fund the deposit for the next PPOR. The current PPOR will be converted to an IP as soon as we move into the next. Does anyone know whether this would contaminate the loan and cause any problems with the tax deductibility of the original loan/give the accountant a headache?
    Thanks in advance.
     
  2. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    If you get a single new loan and use part of the proceeds for personal purposes (PPOR), yes, you will effectively contaminate the loan.

    Look at getting a top-up loan instead (or if refinancing with another lender, ask for two loan facilities - one for the original amount being financed and the second for the additional equity). Keep the original loan amount IO and don't make any repayments to it - you should be able to deduct the interest on this when it becomes an IP. The additional loan amount being used to buy PPOR should be paid down ASAP (is not deductible).

    Note that if you have been making redraws from your current PPOR loan, you may already have difficulty in claiming interest - and give your accountant a headache.

    What type of loan do you have for your current PPOR (P&I, IO, LOC ?), and did you have redraw facility that you used ?
     
  3. thevampiress

    thevampiress New Member

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    Thanks Sim very much for your reply.
    The current loan is a standard P&I loan with ING. There is a redraw facility but we have not used it. We have only paid off 10K off the principal. I was thinking of getting an action equity loan with ING and requesting it to be in a spilt account. Will this solve all problems with tax deductibility?
     
  4. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    You'd want to double check with your accountant, but my (non-professional) belief is that if you split the new loan so that the first part is for no more than the current outstanding amount and the second part only is used for your new PPOR, then you should have no problems claiming the interest on that first part when the current PPOR becomes an IP.

    Like I said though - don't rely on my comments here, double check your plans with your accountant or tax advisor.
     
  5. thevampiress

    thevampiress New Member

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    Thank you very much Sim, i really appreciate it.
     
  6. Jacque

    Jacque Team InvestEd

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    You shouldn't have any problems with loan splits as we've done this before. We now have an offset with our PPOR as it provides us with the most flexibility as well.
     
  7. thevampiress

    thevampiress New Member

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    Location:
    Canberra, ACT
    I want to get an offset account but ING doesn't have offset accounts yet. Bummer..
    Thanks for your reply Jacque.