Browse Forums Home Finance 1 Nov 01, 2016 11:11 pm Would like to get some advise from others. Situation with Property 1 Have an existing property which is currently valued around $612K; i have managed to pay off lot of the mortgage and currently owe $260K remaining in the mortgage. The principal amount remaining is around $417K, but i have around $156K cash sitting in it which can be redrawn. New Property 2 Considering to buy a new property for upgrading (the family is getting bigger with 3 kids). We will need to pay $1.15M to get this house. We want to use the equity in our current house. Current house will then become our investment property and we will be putting it in the rental market. The dilemma we have is between the following options Option 1 Keep the current home loan as it is. Use equity from current loan to get 20% and avoid LMI. Pay repayment for both loans separately. Interest only for Investment property and P+I for Occupied Property. Option 2 Take $156K redraw money out of current loan. Refinance current loan for $417K and pay interest only investment loan Deposit $156K against the new home and reduce the loan amount. Option 3 Are there any other options? I am sure there are. I want to work out the pros and cons of each option including how much deposit, repayments etc we will have to pay. We want to reduce the deposit that we need to pay by maximizing the equity that can be used. Any ideas would be appreciated. Thanks, okman Re: Equity and Loan Dilemma 2Nov 02, 2016 7:16 am Hi, The first two options are essentially the same - the question comes back to structure and deductibility which is something you should run past your accountant. The other option of course is to sell - which of course we try and avoid if it suits our future goals. It may come back to tax and affordability. Often when you've paid off your now investment loan and you have a large non deductible owner occupied loan the cost per month is substantially higher than even if you had sold and bought your new home & invested again. Ask your accountant about CGT implications as well. I rarely advocate selling, just putting it on the table Rebecca Jarrett-Dalton Property crazy expert mortgage broker, love building new homes! Two Red Shoes mortgage broker http://www.tworedshoes.com.au/building Re: Equity and Loan Dilemma 3Nov 03, 2016 12:59 am Hi Okman, As with all loans, the purpose of the loans determine deductibility. So in your case if you are keeping the existing property as an investment, your deductible debt will never be more than $260K (unless you invest the redraw funds). Hence in your scenario, option 2 is a no no as all you will do is have a mixed loan which creates all kind of hassle. Likewise option 1 leaving the current loan as is leaves the temptation to use redraw funds for personal uses so I wouldn't recommend it. However your theory is correct. I would refi the existing loan to $260K with no redraw, and take out a separate equity release loan split for 20% of the new purchase (secured against current property). Then have the remaining 80% as a loan against the new property itself. The $260K would be IO and the other two loans would be P&I. Obviously it all depends on whether you financial situation allows it. Cheers, Tom Re: Equity and Loan Dilemma 4Nov 12, 2016 12:59 pm I have a client in a similar situation. We worked with them and their accountant and decided the best thing was to take the stamp duty hiyt and sell the property into a family trust they had. We arranged a loan for the full market price and this got paid to the clients in their own name so they could use to part fund their next occupied home. The stamp duty hurt but I calculated with tax deductibility and depreciation the break-even period was under 3 years to do so and far less risk and hassle than selling and then buying something else in the market. The biggest challenge will be if you take out a loan and then run out of money - you'll have an incomplete security and lenders do not like this so you can get stuck.… 2 19108 Hi, you've probably already resolved this, however, Commbank will probably pay the funds to you after you send evidence the work is done regardless the change in the quotes. 1 35330 How much are you ahead in payments compared to where the build is at? Have you fully drawn down the loan? 5 11933 |