On Sun, 27 May 2007 13:07:35 +0930, Fredd wrote:
>>I am considering a "line of credit" type home loan to buy a house so I
>> can continue with my regular investing in shares, using the equity
>> developed in the home loan further down the track.
>> Accountant thinks this is fine (tax wise) as long as I get seperate
>> accounts on the loan to draw a line between the tax deductable and non tax
>> deductable parts of the interest paid.
> An ideal method of funding investment in that residential real estate
> secured loans are invariably the cheapest form of finance. Two caveats
> however:
> 1. Any borrowing can greatly magnify your losses so you need the knowlege,
> confidence, and financial ability to be able to hang on even if your
> investment tanks in the short term or the income from it dries up.
I already have a margin loan and I am comfortable with the increased risk
aspect.
> 2. Your accountants advice that you get " get seperate accounts on the
> loan to draw a line between the tax deductable and non tax deductable
> parts of the interest paid" is absolutely essential. If you contaminate
> the loans you will lose the tax deduction. By contaminate I mean mix
> business and private sections, because then you will be unable to
> unambiguously satisfy the tax dept as to which dollar of loan interest
> or loan repayment related to private or business. Tax law requires that
> you be able to unambiguously attribute interest expenditure to a
> specific asset, not just on an apportioned balance of probabilities.
This bit, and the actual mechanics of how these loans
work are what I am curious about: I was thinking that how it
works is that these line of credit loans with seperate accounts mean I
can draw money out (to use for investments, or whatever) against the
equity in the home, as I build up the equity in the home. Then receive
seperate interest (and transaction) statements for the two seperate uses.
I just spoke to someone at Wizard Home Loans - a bit of
confusion while I tried to explain myself - still getting to grips with
the terminology, plus there is a bit of ambiguity with splitting/seperate
accounts also meaning using mixes of different loan products. They stated
it doesn't work like that and I would be best off with a more
conventional home loan and a fixed 20K line of credit, and any "split
account" is at an amount fixed at the start of the loan and difficult
to change afterwards.
Is there any loan that does match what I explained above? Or have I over
estimated the flexibility of current loan products on offer?
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