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P & I / IO w/ offset and refinancing questions..

Discussion in 'Real Estate' started by Crusher, 2nd Mar, 2010.

  1. Crusher

    Crusher Well-Known Member

    11th Jul, 2008
    Newcastle, NSW
    Hey all,

    Just about to get my first home loan. Just curiously, is this example correct?

    $300k P & I loan... after a couple of years the balance is say $270k. If i move out of this PPOR and make it an investment house, i can only claim 90% of this loan (balance) $270k as investment since i knocked some Principle off.

    If i was to refinance in a couple of years and effectively 'recoupe' that principle i had already paid, and got a new loan for say $330k (extra $30k from capital growth) and made that house into an investment property, the whole $330k would be tax deductable right?

    Just curios what loan option to go for. I'm looking at a home package with offset account.

    If i had an IO loan, and saved excess money into an offset, then i'd have money for a deposit for a 2nd house.. Is this the same as paying P & I, then refinancing when ready to buy 2nd house and getting the principle back out for my deposit?

    Hope it make sense.. :)
  2. jrc77

    jrc77 Well-Known Member

    26th May, 2008
    Wrong - the deductable of the funds is determined by what you do with the drawdown. In this case if you drawdown $60k to buy a new house to live in you would end up with a loan with $270k deductable (after original house is turned into an IP) and 60k not deductable. This is assuming you haven't done any other drawdowns along the way for private things which would reduce the deductable component even more.

    This is the way to go. Get an interest only loan with 100% offset. Put extra repayments into the offset account (to at least cover it as if it was P&I) then in X years time when you want to buy a new PPOR simply withdraw the money from the offset for the new place.

    To turn the extra equity drawdown $30k into tax deductable you will need to have a look at "debt recycling" or draw it down to buy some of an incoming producing nature - it can't be used towards the new house and then the interest on it be deductable.