ppor loans vs investment loans

[Blueberry]

i asked my bank to split our homeloan into two
1. main loan ( P&I)
2. deposit for IP (IO)




when talking to them on the phone they asked if the IO part was for investment. I said no as I thought as far as they were concerned,it isnt (loan is obviously securitised against the house). now I'm a bit nervous. Is what i did ok? Do i need to mention what the loan/money is for? are they different interest rates?
ta

 

[Peter_Tersteeg]

There's no difference in rates with most lenders and practically speaking there's no real difference between and owner occupied and investment loan products. From the lenders point of view I believe there is a difference between how risky they are viewed, but as long as you qualify for the loan this is of little consequence.

Some lenders have various policies around investment or owner occupied loans. There are one or two that you can't get IO for non investment purposes.

Given that you'll be using the IO loan as a deposit for an IP, it is actually for investment purposes. Purpose is determined by the use of the money, not the security.

 

[Rolf Latham]

Purpose is determined by the use of the money, not the security.

in real life yes.

there are still some lenders that believe

1. Vacant land loans for building IP dont attract an interest rate dedn
2. Investment purpose loans secured to a PPOR are nnot tax deductable against the incomereceived, even when you can show tax rtns and ruling proving same - responsible lending

And on it goes

ta
rolf

 

[Blueberry]

in real life yes.

there are still some lenders that believe

1. Vacant land loans for building IP dont attract an interest rate dedn
2. Investment purpose loans secured to a PPOR are nnot tax deductable against the incomereceived, even when you can show tax rtns and ruling proving same - responsible lending

And on it goes

ta
rolf

just to make sure i understand point two. you are saying that some lenders beleive that the investment part of my loan is not tax deductible,even though it would be.

also, what does that mean in practice?

and should i call up again and clairfy before i sign anyrhing?

 

[Aaron_C]

just to make sure i understand point two. you are saying that some lenders beleive that the investment part of my loan is not tax deductible,even though it would be.

For example, if you have 2 properties with 2 loans. One is an IP, the other is a PPOR. The banks usually automatically assume (rightly or wrongly) that the debt attached to the PPOR is not deductible, and that the debt against the IP is. This can be good/bad for you depending on what you want to do.

and should i call up again and clairfy before i sign anyrhing?

This is a servicing question so I doubt the banker will discuss servicing in great detail like that.

 

[Blueberry]

For example, if you have 2 properties with 2 loans. One is an IP, the other is a PPOR. The banks usually automatically assume (rightly or wrongly) that the debt attached to the PPOR is not deductible, and that the debt against the IP is. This can be good/bad for you depending on what you want to do.



This is a servicing question so I doubt the banker will discuss servicing in great detail like that.

how is it good or bad? wouldnt I be the one to claim any deduction. I can see they may not bothwr to send a summery at the end of financial year detailing hoe much interest you paid. But that would just be a matter if adding it up wouldnt it?

 

[Aaron_C]

how is it good or bad? wouldnt I be the one to claim any deduction. I can see they may not bothwr to send a summery at the end of financial year detailing hoe much interest you paid. But that would just be a matter if adding it up wouldnt it?

It helps with servicing if you have larger investment debt since you get the negative gearing addback. This is from the banks' perspective - not your actual situation. It is an assumption they make for ease of use.

 

[Peter_Tersteeg]

Aaron's example only really effects how the bank treats the serviceability calculations, which is generally not transparent to borrowers. It doesn't effect how the ATO treats deductability of the loans. The banks will give you a summary of the interest paid on any loan on request regardless of what they believe.