Q. My husband and I have a property in the Blue Mountains, NSW, worth $400,000, We owe $145,000 on it and have $81,000 available in redraw. We'd like to keep the property as an investment and buy a property in Sydney in which to live. We've considered refinancing the $145,000 with an interest-only loan, however, we have no other savings and would need to borrow 100% plus costs for the Sydney property. Does this make financial sense, or should we consider selling our existing home to buy the new one?
A. An accountant will be able to show how you can implement your plans most cost and tax effectively. If you have sufficient income, are very keen to hold onto the Blue Mountains property and, taken that this is currently held jointly on a 50:50 basis, one of you could sell one half share to the other (the higher income earner) for its value of $200,000 (estimated stamp duty $5,500). The $200,000 proceeds of sale of the half share can then be applied to repay $75,000 (half share of the mortgage) with the balance of $127,500 going towards the purchase of your new home in Sydney so that your non-deductible home loan borrowings are reduced by $127,500. The purchaser of the half share could borrow up to $320,000 or 80% of the total value of the property by way of an interest-only investment line of credit (some have a capitalising feature providing a buffer if cash flow is tight at any stage). The investment line of credit is utilised to meet the purchase of the half share plus acquisition costs (total, say $210,000), as well as providing an unutilised portion (up to $110,000) to meet any ongoing investment costs - rates, maintenance and other costs associated with the investment property. Depending on your incomes, this structure should reduce your ongoing costs.
After you talk to your accountant, speak to a reputable mortgage broker to see what options are available, and if you can afford both loans. You may find that you have to sell your existing property in order to buy the new one or, with rental income from the existing property, you can afford both. To find a reputable broker in your area, visit the Mortgage & Finance Association of Australia's website, www.mfaa.com.au
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