Shaun&Dee

Hi all
I have a loan of $400k secured against a property valued at $450k, which is my primary residence. LVR 89%.

To avoid mortgage insurance I have secured an investment property valued at $300k with no mortgage owing against the loan also. This makes the LVR 53%, which is under 80% to avoid the insurance.

I am going to make a payment of $40k against the mortgage in order to bring the LVR under 80% and remove the investment property from the mortgage. I am then going to use this investment property to obtain finance on a further investment property.

If I borrow the $40k to pay off against my principle home loan, is the interest tax deductible on this $40k?

Any thoughts?
Thanks

old.sparkles

I don't know if it is or it isn't but why would you think it might be?

Shaun&Dee

I'm thinking it would be because the only reason I'm borrowing the $40k is to secure the further investment with a better rate.

What works against it is that the $40k loan is not being used for an income producing asset.

old.sparkles

There was me thinking the only reason you were borrowing 40K was to avoid paying LMI on your own mortgage.

If you're offered up 750K in assets, can't you mortgage them to 600k's worth and keep at the 80% rate - that would give you some cash for further investments.

Craig Vaughan

That is correct - tax is all about purpose. The purpose of that 40k is to pay off your PPR and therefore not deductible.

However, come to buy your next property, if you borrow funds against you current investment to cover 20% plus costs on your new property, those funds will be deductible to you as the purpose was to buy an income producing asset.

You definitely want to uncross your properties and keep them separate loan/s per property. Ie, each loan to only have one security, not linking your PPR to your investment properties etc etc.

All the best.

spouse of scouse

With the amount of wheeling and dealing you're doing, I think you're mad if you don't have a good tax accountant!

john in oz

Finance broker and adviser here. I have seen many continue to borrow at high levels using available equity in their homes and other properties. Without knowing your full situation it can become a high risk strategy because if anything goes wrong you place yourself in jeopardy of losing one or more houses. You normally need very high levels of income to support this and have good cash reserves especially if you are reliant on rental incomes to support your strategy.

Sometimes paying down the debt initially to put yourself in a stronger financial position is best.

If you wish to discuss your loan and future loan structure, current finances or your strategy then let me know.

I hope the above helps with the above comments from others.