Now is the Time to Refinance and How to go About it

Claw some of that interest back off your bank and use it to make principle repayments. Interest rates are low, really low, especially if you have a principle and interest loan secured by your home. In fact Westpac are offering competitive interest rates and even rebates to cover the costs of transferring and setting up the new loan. Now more than ever is the time to think about refinancing. To make the most of it change your loans to principle and interest and secure as much a possible with your owner occupied home. Here are the points you need to consider when refinancing;

Interest is tax deductible when the money borrowed is used to buy an income producing asset or is used to refinance a loan that was to buy an income producing asset. It does not matter where the loan is secured.

Don’t break the nexus between the purchase of the income producing asset and the borrowings. The nexus will be broken if you mix the borrowings with your personal funds or if the money takes a detour. Further you cannot claim a tax deduction for the interest on borrowings to reimburse yourself for the costs you have already paid that are associated with an income producing asset. There is much more detail in our claimable loans booklet

With the banks charging a higher rate of interest on interest only loans and with such low interest rates, a simple difference of 1% in the interest rate can make up 20% of the repayment amount. If you can reduce the interest you are paying by 1% that leaves 20% of your current repayment to cover the principle. It may be better to go for a principle and interest loan even on your investment property, even if you have non-deductible debt because the repayments over 30 years will be very similar to the interest only amount but the debt will be paid off. See what your bank is offering, and crunch the numbers.

Apparently, the banks will allow you the lower owner-occupied interest rate on loans secured by your home even if the money is used to buy an investment. Use as much of your own home as you can as security for the rental property loan and argue for the lower owner occupier interest rate.