Changing loan from Investment to Standard loan

Hi

I'm planning to build a house for investment.

Thanks all

Hi mqtutor,

Would need to know a little bit more information however you wont need to change your loan at all. The only thing with the lender would be if you can service the loan without the incoming rent. Why change to principal and interest? If you kept the loan as I/O, and in lets say 5 years time you decide to use it as an investment again, you would be able to claim the full loan amount for tax deduction. Best way may be for a I/O loan with an offset, this would give you the best flexibility later on.

Land tax is a state govt controlled tax and is different in each state. if you tell me which state u are building in, I can tell you the rules and if you would have to pay it or there is a way around it.

Glen

Hi Glen,

Thanks for your input. We are planning to live in that property so principal and interest will reduce our loan faster. I'm building in Victoria. Do you know if I can avoid paying land tax?

Thanks

is it possible to avoid land tax at all?

mqtutor,

Vic has the threshold of $250k so you probably will have to pay the land tax. Early next month the Henry review of the Federal tax system gets released and will be interesting if anything from that transfers down to the State level.

Pepto471,

You could always sell the IP the buy it again the next day? You wouldn't have to pay land tax then.........

interesting

I really appreciate your idea regarding building a new house. Regarding the loan principle and interest as per my knowledge loan advisor is the best person to help you with and clear your doubt. I would suggest you to contact loan advisor.

Hi,

I have an I/O loan and my bank allows me to pay up to $500 per month without any penalties above the interest only amount. This is pretty close to the P&I amount for my loan so this allows me to have the I/O loan while still being able to put extra payments in when I want to reduce the principal a bit.

Also, my experience of I/O loans is that the I/O period is only for a few years (3 or maybe 5 in my case), so it will revert to P&I down the track a few years. Banks will typically hit you up for a switching fee if you did want to make a change.

I'd be going to a mortgage broker for some options and seeing what they say you need to disclose to the eventual lender.

Regarding taxes and state charges, here in Qld there are more state charges for an IP than a PPOR purchase, and for tax reasons, such as CGT liability, depreciation etc, it is recommended you keep all records of house related expenditure for the whole period of your ownership of the house. I believe CGT liability is based on a percentage of the time the property is owner occupied vs rented, rather than the value of the property at the time it stopped being rented and became your residence, so thorough records will help when you go to sell.

Good luck.

Mick