Join our investing community

High equity position

Discussion in 'General Investing Discussion' started by miyagi, 6th Apr, 2011.

  1. miyagi

    miyagi New Member

    5th Apr, 2011
    Hi all,

    These forums have been extremely useful to me over the last week. I am in a bit of a fix and it is of my own making.

    My current situation.

    My wife and I own our current apartment as tennats in common, 50% split. The bank has recently valued it at $480k after 5years and we have $94k left owing on it with $93k in a 100% offset account so we are effectively paying $0 in interest, we bought our place for $465k, but I think the bank is undervaluing it as recent sales in our block have shown two other apartments sell for $600k+.

    That is not my concern. This is our current PPOR.

    We are looking to buy a new PPOR and have this current one as the IP, I know I did the wrong thing in paying down the loan and I should have kept it all in the offset then used the money in the offset to buy our new PPOR and then have all the interest tax deductible for both of us since we are in the second highest tax bracket.

    My lender mistakingly told me I could use the equity in my current PPOR towards the new PPOR and still claim a tax deduction on the full $480k. I now realise this is 100% incorrect as the USE of the funds from equity are funding a PPOR and not an IP.

    So, to try and sort this out, without selling the place as it is in a great position for rental return and we want to keep it for a very long time (10-20years), we are bot in our early 30s.

    What I want to do, and if someone could tell me if I am dreaming or not...

    Is to refinance but like the following.

    I ask the bank (or new lender) for a loan to buy out my wife's portion ($240k) plus stamp duty. My wife receives the $240k but has to use $47k of the funds she gets to pay her half of the current loan that is in both our names. My new loan pays out the other $47k of the existing loan and I am left with a loan of $293k secured against the property with equity of $187k, of which $91k is available for a LOC to invest.

    After all of that we would have $93k cash (orginally from our offset), plus $193k from my wife (the money coming from my new loan) and any other savings we have, which we then can either put in an offset against my loan to pay no interest while we look for a new PPOR and then use those funds to pay 20% deposit and stamp duty.

    I realise I have to pay stamp duty on the $240k which is a cost, but would I be able to claim the interest calc'd on that on tax? It seems we can get $500/week rent, so it just about comes out next to no cost to run, or a loss and put the rental income towards the next offset against the new PPOR loan.

    And of course solicitors fees...

    Sorry if this sounds like a financial plan, I visited a FP, just an introductory and got me thinking hence my questions.

    Thanks in advance and sorry for the long post.