Can you transform your mortgage into investment credit?

There are different scenarios in which you can choose to transform your owner-occupied home into an investment property, including:

  • Return to live with parents or another family while you rent your old accommodation
  • Move elsewhere in a rental property (“rentvesting”) while you rent your old accommodation
  • Buy a new home to live in while you rent out your old home
  • Moving interstate or abroad for work while you rent out your old home

Mortgage lenders offer different types of real estate loans to homeowners and real estate investors. After all, buying a house to live in is a different type of transaction than buying an investment property and involves a different type of risk for the lender.

So what steps do you need to take to turn your owner-occupied home loan into an investment loan?

Check the fine print and let your lender know

Read the loan documents, terms and conditions of your first mortgage purchase to see if there are any limitations or restrictions on how you can use your property. You may find that if you have applied for a homeowner home loan, you may need to notify the lender and seek their consent if you intend to vacate and / or rent your property.

Due to the different risk associated with investment property compared to owner-occupied real estate, your lender may require you to pay a higher interest rate and / or fees, or provide additional security to convert. your owner occupied loan into an investment loan.

If combing through the fine print and legal jargon gives you a headache, or you’re unsure of the best option for your situation, a mortgage broker may be able to help you determine your next move. .

Take into account the tax implications

From a tax perspective, renting a property as an investment is different from living in a house as an owner-occupier. While a homeowner may be exempt from many primary residence taxes (PPORs), a real estate investor may have a series of additional tax considerations to take into account.

For example, depending on the income from the property versus the cost of its maintenance, your property could be positively or negatively oriented. This could affect your total taxable income for the year. Consider contacting a tax professional, mortgage broker, real estate agent, and / or property manager to determine the best strategy for caring for your old home as an investment property.

There is also the Capital Gains Tax (CGT) to consider if you choose to sell your property. Although CGT generally does not apply when you sell your PPOR, you may need to take this into account if you are selling investment property. You may want to keep the “six-year rule” in mind, where you can view the dwelling as your primary residence for up to six years if it is used to generate income, before having to consider CGT if you choose to sell.

Remember that tax rules are complex and can change from year to year. Consider contacting the ATO and / or a tax accountant before making any decision that could affect your taxes.

About Wanda Wall

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