Build postponed - moving funds for building to loan account?

LS OS · Dec 27, 2022 9:00 am

Hi Home Owners,

We have funds set aside to do our major reno, but with interest rates so erratic at the moment and other personal factors, we decided to put our build on hold for the time being and give ourselves some breathing space.

The funds we had saved for the reno will pay off our mortgage almost, leaving about 50k owing still, if we move all our funds to the loan account, will we still be able to draw this back when we need it to build again in future? We are new to loans and not sure how it all works, we are with Macq and have an offset account?

Any advise, we will have access to the funds to renovate in future?

Thanks.

strannik · Dec 27, 2022 11:24 am

Don't move it into loan account, as that will make you unable to use those funds for personal reasons without potentially complicating your tax matters further down the line, should you ever choose to convert it t IP. Technically, once you move money into loan account that means you've paid out part of the loan and that money now belongs to the bank. So any future redraws will be you essentially borrowing the money again.

It's best to park your money in the offset account (assuming it's a 100% offset). That way it's still your money and the original loan won't be contaminated. But you will still enjoy no interest on that portion of the loan.

LS OS · Dec 27, 2022 3:57 pm

Thanks for your reply that is very helpful, it has always been an IP since we bought it, we don't need any of the money for anything personal, but will keep it in the offset account, hope it is safe there! :-?

strannik · Dec 27, 2022 5:46 pm

You're probably better off checking with your accountant what's the best option from tax perspective (in most cases offset is).

chippy · Dec 27, 2022 9:38 pm

If it's a primary place of residence then there shouldn't be any tax implications either way.
Off set accounts are the simplest place to park your money with the easiest access. If you put it on the home loan it can sometimes have fee's to redraw and sometimes it can only be redrawn in certain amounts. With the huge variety of home loans and products though that may not be the case.
Talk to your bank and explain what your plans are, they should be able to tell you what is best.

strannik · Dec 29, 2022 11:51 am

chippy

If it's a primary place of residence then there shouldn't be any tax implications either way.

until you decide to turn it into IP 10-20 years later, and you find that your loans are all contaminated with personal expenses and it becomes a nightmare to unwind

it's best to always keep your loans clean, because most people have no idea what they will be doing with property in 10 years time.

chippy · Dec 30, 2022 4:44 pm

The OP said it's already IP and has been since inception.
And it makes no difference what sort of finance you have. If the property is your primary place of residence there is no tax on it while you live in it. There is nothing to unwind, it's all personal.
If you ever decided to rent the property out (then becoming subject to tax rules from that point) it would be more important to keep things seperate but from what the OP has described there is no issue with paying down the loan and then redrawing as it's all personal and untaxed.

strannik · Dec 30, 2022 5:35 pm

It doesn't matter what sort of finance you have, it matters what the purpose of borrowing is. If the property is going to become IP again, it will matter then. Plenty of people plan one thing and then everything changes 5-10-15 years down the track.

I'm already planning my third 'forever home' for example.

chippy · Dec 30, 2022 5:42 pm

Sorry, when you say IP what do you mean.
I don't understand what you are getting at

strannik · Dec 30, 2022 5:46 pm

chippy

Sorry, when you say IP what do you mean.
I don't understand what you are getting at

What i'm getting at is that it's usually best to keep the money separate in offset accounts than put them into loans with the view that a redraw is only a click away anyway. Yes it may be one click away, but that one click can lead to a lot of pain a decade down the track. IP - investment property.

chippy · Dec 30, 2022 6:09 pm

Yeah got it now, your talking about claiming the interest on an investment property as a tax deduction.
For the typical person who has a house and sells it and moves on to the next it really isn't a big deal, but as pointed out if you have access to an offset account it's simpler to use that anyway.