My partner and I have been discussing buying a new home. We currently live in my home which is worth about $750,000 and the home loan is $310,000. If I didn’t sell my place can we use the equity as a deposit in a new home and does that mean my loan would become an investment loan if we rented it out? The home we are looking is around $1.1M, would there be enough equity in my place to pay a deposit?

Hi Mason,
If your loan is $310,000 & your home is worth $750,000 you have $290,000 (80% of $750,000-$310,000) in available equity before mortgage insurance, so lots of equity to help you secure your new home. And yes, the existing loan would become an investment loan at investment rates around 4% depending on your circumstances.

Purchasing for $1,100,000 will incur stamp duty costs of approx $63,000 so total cost to buy would be $1,163,000 less $290,000 equity = loan of $873,000. So now the tricky bit, does your income support total lending of $1,473,000 ($310,000 + $290,000 + $873,000)?

I can help you understand your borrowing capacity & find a best/suitable lender for the deal.

Peter Dall
0414 583 233

the test for deductibility is the PURPOSE of the borrowings.
the purpose of your loan is clearly to acquire the house you occupy, hence once the property becomes an income-producing asset, the interest on the mortgage will be deductible

HOWEVER!!!! the purpose of the borrowing can be "diluted" by subsequent borrowings for a different purpose.....

eg if you redrew on your homeloan last year to buy a dirty great big yacht, then that portion of the mortgage is not for a creditable purpose, and hence a portion of the mortgage will then be personal and not deductible.

talk to your accountant about creditable purpose and investment property. Also talk to your accountant about capital gains tax. because once you move out of your now home, your property becomes subject to capital gains tax.....and there are lots of things you need to know!!! The potential tax cost (or tax saving if you do things right) is HUUUUGE!!!!

cheers
bc

Hi Mason,

Congratulations on building the equity in your property. It’s a real positive step when you realise that you’re creating even more equity every day in your property as it opens the door way of choice. Choice that will help you hopefully create more wealth and assist you secure your future even more.

As Peter outlined above, you could use the equity to assist with the purchase of an investment property. Subject to you meeting the banks requirements to show you can meet the repayments on the loan.

You also asked the question about wether it could/ would be determined as being an investment loan.
This is where it gets very interesting and comes down to how you structure the loans. It is in the conversation we would have with your accountant to ensure we adopt a structure that will allow you to easily administer the investment loans (at tax time) and separate the owner occupied portion (so you can pay it down faster) and allow you to maximise the returns on the investment loan.

The devil is in the detail in this instance & some conversation with your accountant, banker/ broker will give you a much better outcome where it counts the most - your back pocket.

I encourage you to have that conversation to EXPORE the best way to proceed.

Love to help facilitate that conversation.

Regards

Craig
0481 383 490

Hi Mason,

You certainly have plenty of equity in your property to enable you to purchase another property. The figures as shown in a previous answer above are approximately correct in that you would end up with a mortgage on the new property of around $873,000. We would need to determine whether you can afford this new loan and I would need to meet with you to obtain a complete picture of your financial situation before recommending any suitable lenders for this purpose. You would also be able use the rental income from your existing property to help with the mortgage payments.

You would also need to have a discussion with your Accountant to ensure that your arrangements are structured correctly in order to minimise any future liabilities such as Capital Gains Tax etc.

Whenever you are ready, I would be happy to meet with you to explore your options.

Cheers,

Michael Budge
Director
Bayside Finance Group
M: 0418 547337
E: michael@baysidefinance.com.au

Hi Mason,

I have clients from Tasmania to Saudi Arabia, so yup. the electronic age makes some aspects of what I do super duper easy:)
regards
BC

Hi,

You can take out $290,000 from your current house.
And you can get 1.1 investment loan.
One ban is giving same rate (3.69) for both owners occupied and investment property.
Please inform me if you need any help.

Regards,

Dev