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refinance ppor home loan and purchase investment property

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Vish | 06 Sep 2013, 02:09 PM Agree 0
Hi,

I am aware that many people would have asked the same question in the past but I am still not clear on this and will appreciate your opinion.

In a nutshell, i am planning to refinance my PPOR and use the additional funds (i.e. cashout component) to buy another investment property.

My existing homeloan: $250,000

Current valuation of house: $425,000

Refinance based on 80%: $340,000

Ask the new lender to split the loan in two:

First loan: $250,000 (principle and interest)

second loan: $90,000 (interest only)

Initially i will advise lender to park the cashout component (i.e. $90,000
in second loan)

In the next few months, I will buy an investment property and that is when, I will withdraw funds from second loan ($90,000) and use them to purchase the new property.

I am thinking about doing this because then i can clearly show that $90,000 was used to generate income and hence I can claim tax deduction for interest paid on that amount.

Thanks,
  • Eos Property | 08 Sep 2013, 11:20 AM Agree 0
    Hi Vish,

    Not a broker.

    If you haven't already done so grab yourself a broker and get them to help you through/check your plans. Often brokers can understand your bigger picture and will work with you to help you reach your goals - whereas a bank is more interested in looking after their shareholders interests.

    In answer to your original question - you have pretty well nailed it.

    Just to clarify a couple of points - your $90K can reside in a line of credit type facility. Other than initial set up costs and while no funds are drawn this type of structure remains cost free.

    The $90K can provide funds for deposit and purchasing costs towards the next purchase. Notionally I allow around 5% of total purchase price for costs and then another 5, 10 or 20% for your deposit.

    The balance of the loan can be provided by a different lender. In some respects this can be advisable as you spread your security amongst different lenders.

    Hope this helps.
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