Quick question - Borrow or cash?

[mandimoo]

Hello,
Just wondering when you are doing renovations on an investment property do you pay cash or do you extend your loan to pay for it?
We have cash but in the form of redraw on our PPOR mortgage, since this money is currently reducing our non-deductible interest payments, would it make sense to take it out and use it for this purpose?

Thanks!

 

[Aaron_C]

You have redraw or money in the offset?

 

[mandimoo]

Have to re-draw (easy and doesnt cost anything) as we were not allowed an offset account, CBA said they dont do them!

 

[Corey Batt]

Have to re-draw (easy and doesnt cost anything) as we were not allowed an offset account, CBA said they dont do them!

How nice of CBA You'll find that CBA does the MISA account, which is a full-offset account. Whilst not the best offset account in the world, it does the job. Are you perhaps on the No-Fee home loan, which cannot have a MISA acc attached?

 

[Jake D]

CBA do MISA, but it will depend on your account.

Redraw has tax implications if you ever plan to rent your PPOR out.

Edit: I tried to type real fast but CJay still beat me to it.

 

[Aaron_C]

Redraw for use for investing purposes is fine.

 

[matto_]

If they are major reno's and you want additional funds - how do banks consider this - do they estimate the value on completion?

 

[Aaron_C]

If they are major reno's and you want additional funds - how do banks consider this - do they estimate the value on completion?

It would be considered a 'renovation loan' which is basically a cash out (equity withdrawal) on the security. So they don't estimate value upon completion but they base the figure on the value of the house today.

 

[mandimoo]

I would love to have an offset account it would make life a lot easier, it gets really confusing as my husband gets paid monthly I put his entire salary into the mortgage and then I take bits and pieces out as needed but it means I have to remember the date for every direct debit from our streamline account and it's very difficult and annoying.
We dont plan to ever rent out our PPOR but who knows with my husband's job we could end up moving again and renting it out would be easier and cheaper than selling it.
Will use redraw for the renovation as long as it makes sense, I am hesitant to ask the bank for more money at the moment anyway being as we have so much debt

 

[Aaron_C]

Mandimoo - using the redraw from your PPOR loan to fund the renovations of an investment property will be fully deductible debt...this is even if you move out of your PPOR because the purpose of the money determines deductibility, not the security.

 

[tobe]

many people would set up a new loan when they redraw from their PPOR loan for investment, just so its clear to them, their accountant and the ATO if they every get audited.

 

[Dylan33]

I have just refinanced and bought an IP. I borrowed an amount for renovation purposes on top of the home loan instead of using my redraw.

Tobe. Are you saying I should put that in a separate account on its own? As I was going to put it in my new redraw/ offset account to pay down my non deductible debt.