A split loan can be either fixed & variable or investment & PPOR
Or a combination of the two – when a loan is ‘split between fixed interest and variable interest rate it is correctly called a ‘split loan – see our split loan calculator for more information on this.
However you can also have a loan package or account that allows for multiple sub-accounts or ‘splits’. These can be as above or they may be used to track deductible and non-deductible borrowing.
Often it is sensible to have more than one home loan account. This is particularly the case where your own home loan has yet to be fully paid out and you want to borrow to invest in property or other assets.
The general rule is that interest on home loans is tax deductible if they have been taken out to finance investment – which generates assessable income. On the other hand a primary place or residence (PPOR) home loan does not meet this test and so the interest on it is not tax deductible.
This has a number of implications.
- Where your borrowing is attributable to both the house you live in and some other investment, it usually makes sense to have the lending for each purpose done in separate home loan accounts. This makes tax accounting easier, and reduces the chances of the tax office objecting to the amount of interest you are deducting in your tax return.
- When you have such a split structure it may be possible to pay off your own home as fast as possible at the same time as allowing investment debt to remain stable. This maximises the proportion of your lending that is tax deductible.
- If you have already paid off your own home this may be less of an issue for you.
Please note: you should not take this as financial advice as your circumstances may mean that the principles set out here do not apply. You could always consult your accountant before deciding on the issues set out above.