Can you convert your home loan into an investment loan?
There are several scenarios you might want to convert your home ownership into investment property, including:
- Move back in with parents or another family while you rent out your former home
- Moving to a rented apartment elsewhere (“rentvesting”) while you rent out your former home
- Buy a new home while renting out your old home
- Moving to the highway or abroad for work while renting out your former home
Mortgage lenders offer various types of home loans to owner-occupiers and real estate investors. After all, buying a home is a different type of transaction than buying an investment property and carries a different risk for the lender.
So what steps do you need to take to convert your home loan into an investment loan?
Check the fine print and inform your lender
Read the loan documents and terms from the first time you sign up for your mortgage to see if there are any restrictions or restrictions on how you can use your property. Once you have applied for a home loan, you may need to notify and obtain approval from the lender if you intend to vacate and / or rent out your property.
Because of the different risk of investment property versus owner-occupied property, your lender may charge you higher interest rates and / or fees or provide additional collateral to convert your home loan into an investment loan.
If digging through the fine print and law is a headache, or if you’re unsure which option is best for your situation, a mortgage broker may be able to help you figure out your next move.
Take into account the tax implications
From the point of view of the tax authorities, renting a property as a capital investment is a different catch than living in a home. While an owner-occupier may be exempt from many taxes on their primary residence (PPOR), a real estate investor may need to consider a number of additional tax considerations.
For example, depending on the income from the property compared to the maintenance costs, your property could be aligned positively or negatively. This could affect your total taxable income for the fiscal year. Consider reaching out to a tax advisor, mortgage broker, real estate agent, and / or property manager to help devise the best investment strategy for your former home.
If you decide to sell your property, you must also consider capital gains tax (CGT). While CGT typically doesn’t apply when selling your PPOR, you may need to consider that when selling an investment property. You may want to keep the “six year rule” in mind that the home can be your primary residence for up to six years if it is used to generate income before considering CGT when considering a sale decide.
Remember that tax rules are complex and can change from year to year. Consider checking with the ATO and / or a tax advisor before making any decisions that could affect your taxes.