Let’s say I’m considering buying an investment property. I agree with my bank to release e.g. $300k in equity against my PPOR. I sit that in an offset and don’t buy a property for a while. Does the bank check in at some point asking about it? Do they care?
Do Banks Care / Check What You Do with Extracted Equity?
zfind on 02/08/2025 - 18:17
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Thanks for the helpful reply mate.
In my experience, they ask. So you might want to have an answer lined up that will be acceptable.
"I'm not ready to spend it yet"
Yep
They like you borrowing more because they can charge you more interestSo increasing your borrowings in thier interest!
As long as you remain within your capacity to pay the monthly a instalment
I reckon I don’t know? Hence the question.
@Protractor definitely doesn’t know
He rarely does
Yet he'll post an answer regardless.
No, they don't - you don't have to give them any reason to refinance / redraw equity.
Thanks for the reply, appreciated.
The banks don't care but there are tax implications. If you are borrowing to invest (in anything) it would be best to keep that loan separate for tax purposes. Have a chat with your accountant.
Not for investing in shares, I think it would be foolish to do that when margin loans exist, just asking for trouble. Cheers mate
Well a "standard" loan won't make a margin call, so pros and cons.
But if you're borrowing to invest in anything you should keep it separate so you can claim the interest as a tax deduction.
Home loan rates are also cheaper, and easier to qualify for.
For an investment property best to keep the loan completely separate to make tax time 1000% simpler.
Just get a 100% loan when you find the property, using your PPOR (and the IP) as security.
Banks care about security (loan to value ratio) and repayments.
The ATO only cares about what the funds are used for.
If it's not actually for an IP, just make sure you can afford the repayments and there shouldn't be too many questions.
Lol what?
Margin loans are far riskier and more expensive…
Why wouldn't you borrow at the lowest possible interest rate you're ever going to see? (home loan)
When I increased my home loan to take out some equity, they asked what it was going to be used for - the 'why' seemed to be fairly important. They then asked for quotes/estimates for the work we were planning to have done. Not 100% sure but I think you had to state what the purpose was as part of the loan application.
But then once it was in our account, nothing, no accountability, no questions about when the work was starting, etc.
It’s sounding pretty rock solid now, thanks for sharing - filling in a knowledge gap for me.
This mirrors my experience. Most certainly they want to know like any other time you ask someone for a loan. You're essentially extending your credit as a new mortgage. Once the new mortgage is created and the cash hits your offset account, you could do as you wish with it. Note that the ATO would not allow you to purchase a non-investment asset if you were talking about an IP, although I'm not sure how they would know.
release e.g. $300k in equity against my PPOR
Note the word against. That is, your PPOR is their security and they have a buffer. If you fall behind repayments incl. new draw down, they will just sell your PPOR to recover their loan.
So, no, they don't really give a damn what you do with it.
Got it and thank you!
They don't really care as the money is secured against your property. However I wouldn't tell them you're going on a world trip for a year and spending it on coke and hookers. I did a cash out refinance and got a few hundred large out just by telling them I'm doing some renovations and buying a new car.
Without saying too much, this helps.
Note: probably not hookers and blow.
"probably"
I'm reading between your lines here - hookers OR blow is not a ruled out set of conditions..
They care a bit. But saying "Future investment" will usually tick the box that the loan assessor needs it to.
I wouldn't move the cash into an offset, though. Just don't draw it down until you're ready to purchase. This will keep the tax side of things tidy.
By drawing it down meaning receive the funds for my use from the bank? So you can be approved for the release of equity but it just sits with the bank until I tell them “ok I need cash now”?
Yes. It will appear as a new loan account, with $0 owing, $300,000 available. Then, when you need the funds, you simply transfer them where they're needed (to your solicitors' trust account awaiting settlement, for instance). That way, there is only one transaction and no murkiness for tax deductions.
IF you set the loan up as principal and interest, the amount available will reduce each month by the minimum principal payment. If it's interest only, the full amount will be available until you transfer it out.
Very concise and clear - thank you for explaining!
Mine showed up as two accounts, like an offset: one with $300,000 available (ie the offset) and one with $300,000 owing (ie the mortgage). The mortgage payment comes out of the offset account.
@Some Guy: This is not ideal. ATO can argue that the loan was used for a cash withdrawal not associated with investing, and deem that none of it is tax-deductible. Especially if the cash balance in the offset account is being used to make minimum mortgage payments.
@Jake D: I should have added that it was an IP that was remortgaged but yes the cash just sat there, decreasing by a bit each fortnight, for nearly a year until we actually invested it. It cost about $2k in interest having it sit there. Paid for the kids braces out of it but could also have bought a car and jetski as far as the ATO would have known. I did wonder why more people don't remortgage the IP and use the funds to pay down the PPoR? No need for us as we own our PPoR (offset > mortgage in IO loan) but what you say would be why.
I did wonder why more people don't remortgage the IP and use the funds to pay down the PPoR?
Because that wouldn't be tax-deductible.
It is the purpose of the funds, not the security, that determines deductibility. Sounds like you have a mixed-use loan. I'd suggest searching that term over on property chat to see if you can fix it.
Some answers here are not entirely correct. The bank will ask what the funds are for, from a pre defined list of categories. So if you say you want to borrow for gambling/crime then they will possibly decline it. If you say investing in shares or buying a new car, then they'll likely approve it. But once they approve the new loan, they won't check that you actually bought a new car or actually bought some shares with it.
Banks dont care as long as you pay the minimum payment for the mortgage.