PPOR loan refinance for shares deductibility

Hi,

We have a our PPOR with an attached offset account. It is IO currently.
I am refinancing to get a better interest rate, will probably go for a P&I to get a better rate.

In the process i realised that our home value has probably gone up a bit, and the bank would be willing to give the extra amount for purposes of share investment.
I was actually looking at purchasing a good amount of shares in the near future.

Say the house was bought for 700k and gone up to 800k. Does the bank just park the extra cash in the offset account?
If i want to use the extra loan capacity to purchase shares, do i need a separate loan to keep my purposes of loan separate and make the share purchases tax deductible?

 

When you refinance you will have a loan of the same amount, plus costs if they are capitalised or you might pay these from your own pocket if there are any.

An offset account if for stashing cash you have to offset the interest you pay on your loan. If your property increases in value this added equity isn't realised in anyway unless you do something.

If you want to use some equity for another purpose - shares, car, investment property etc it is a very good idea to do this under a second loan (split) so that things are neat and tidy for tax purposes. You don't want a single loan with mixed purposes, your accountant will rightly string you up. Ensure the draw down goes straight into your trading account which is not a transaction account as I have heard this may be frowned on by the ATO.

As for how much you can borrow, it depends on serviceability - the banks judgement of your ability to repay the debt. And Leverage, generally speaking most lenders will lend up to 80% of the value of a property with loan mortgage insurance. If you were at 80% when you purchased your property (making interest only payments) and it has increased in value by $100k (per the banks valuation) then you have $80k in usable equity you could refinance as a split loan.

This is all generally speaking and in no way advice which I am not licenced to give.

 

Thanks Hodor,

When refinancing on the application pretty sure they are giving me the same LVR on a higher amount that the house is now valued.

Will clarify with my banker. Thanks for your input and time. I understand on keeping the purposes separate with completely separate accounts.

 

Split the loan into 2 portions and use the second portion to buy shares. If they are dividend paying the interest could be deductible.

 

Thanks Terry, makes sense.

New thought: if we want to make further share purchases while we have a PPOR with cash in offset, does it make sense to paydown x amount, then get another loan for that amount to invest?

If we just pull cash out of the offset, we are effectively borrowing that amount anyway?

Not sure if the bank will lend at the same rate for share purchase however

 

If you used cash in an offset attached to the main reisdence the interest on the loan will increase and this won't be deductible.\

So it may be better to pay down the loan and redraw to invest. Before you do this split the loan.
The bank won't know that you are investing in shares so the rate should be change.

 

Thanks terry again. Sounds amazing, seems applicable to many ppl yet i dont hear about this much?

To paydown and redraw - should be an interest only loan for that portion right? the rest would probably be P&I as better rates.

1)Am i able to paydown then create the split loan straight away - what about the rule about doing something solely to minimise tax, does that apply in this case? Although I would be doing it to mainly structure my loans better not for the tax benefit
2)Does the whole loan have to be drawn out straight away and shares bought immediately?

 

Not many people talk about debt recycling as not many can advise on both loans and tax. A lot of brokers are starting to thrown the phrase around these days though.

Recycling debt can work with PI too.

1. what rule? Yes you can pay down debt and reborrow to invest.
2. depends on the product