Refinancing Home Loan - Withdraw Equity above 20%

bloopzorm9 on 26/01/2021 - 15:27

Hi all,

My wife and I own an apartment which we lived in for a few years and have paid down roughly $30k in equity in addition to the 20% deposit.

We recently purchased and moved into a house and have kept the apartment as an investment.

We are planning to refinance the apartment loan and set it to interest only. Are we allowed to withdraw the additional equity we have in the apartment to put into our house offset account?

We spoke to our financial advisor who believes this isn't allowed under tax law and directed us to an accountant instead. Seems everything we ask gets the same 'ask an accountant' response, so don't know what we are paying him for, or if he's being genuine.

Thanks

Financial Home Loan

Comments

  • oceani on 26/01/2021 - 15:43

    Sounds like your financial advisor is just general. You should always have a technically qualified person as an advisor. You might end up paying more but the advise will be solid tax wise.

    If you are refinancing, your existing bank might not allow the withdrawal. Go with another bank, see which one allows you to refinance with the lowest deposit. Should be able to keep the additional amount. However, keep in mind nowadays banks provide you with better interest rate if you have higher deposit/ equity. Hope this helps.

  • avoidfullprice on 26/01/2021 - 16:24

    Think it is to do with this

    https://www.ato.gov.au/law/view/document?docid=TXR/TR20002/N…

    But I'm not interested in IP so haven't interpret the full text. Luckily, there are plentiful of other ozbargainers here who will love to provide you with free advice on this. Bless this community <3

  • pndl on 26/01/2021 - 16:30

    You can if you create a loan split. That split won't be deductible though. I don't see the point as usually investment loan interest is higher?
    If you don't split the loan then you risk the loan becoming mixed purpose / contaminated in which part of the loan was used for investment (buying an investment property) and part of it personal. Then the loan won't be fully deductible and a mess generally.

    • bloopzorm9 on 26/01/2021 - 19:17

      Thanks, very educational

  • Seraphin7 on 26/01/2021 - 16:37
    +3

    The purpose of the loan, not the asset that provides security over it, is the key factor.

    If you have a loan over an investment property and take money out of that loan for a non-deductible purpose, you cannot claim a tax deduction for that part of the interest relevant to the non-deductible withdrawal.

    In short, if you pull out $100k (for example) from your old property to pay off the loan on the new, the interest on that $100k is non-deductible (as that $100k is being applied to a non-deductible purpose).

    • bloopzorm9 on 26/01/2021 - 19:17
      +1

      That makes sense, thanks.

  • serpserpserp on 26/01/2021 - 18:49

    You should have withdrawn the equity before you moved into the new place.

    • JIMB0 on 27/01/2021 - 05:57

      I don't believe that would have solved the tax deductable issue.

  • conan2000 on 26/01/2021 - 21:30
    +1

    As above, you couldn't tax deduct the interest on the $30k component. You could withdraw it and use it for other investment purposes (e.g. deposit on another investment property, shares etc) and it should still be tax deductible.

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