Switching Primary Residence to Rental

lightspeed wrote: ↑ I am planning to switch my primary residence to rental later this year.

Before I do this, I want to know what things I need to do beforehand.

1. should I get an appraisal on the primary residence?
2. do I contact my mortgage to notify this change, and how much will my mortgage rate increase typically?
3. I want to refinance the property enough so that the rental income will cover the mortgage, and move possible equity to my new primary residence. How is that calculated?

rob444 wrote: ↑ 1 - Yes, at the time you actually change status to investment property
2 - Yes again at the time, you'll need to inform mortgage lender and insurance provider
3 - Not sure what your question is. Just be aware if you increase your rental property mortgage and put that money into a new principal residence, the interest paid will NOT be tax-deductible.

lightspeed wrote: ↑ Thanks for the response.

For 3 - this is mostly for tax deduction purpose. Because mortgage interest on primary residence is not tax deductible, but mortgage on rental property is tax deductible. On my current primary residence, I only have a small amount of mortgage ($100k remaining). But if I am switching it to rental property, I want to increase my mortgage (like $400k) so my rent can cover the mortgage interest on the $400k mortgage. In turn, I can use the extra $300k and put it on my new primary residence to reduce the mortgage and reducing the interest as primary precedence mortgage interest is not tax deductible. Does that work?

rob444 wrote: ↑ No that doesn't work. In order to be tax deductible, the funds must be put into an income generating investment (which in most cases is the rental property itself). Any mortgage proceeds you put into a new principal residence, will NOT be tax deductible. The fact the loan is secured against a rental property is irrelevant, the only thing that matter is what those funds are used to invest in.

lightspeed wrote: ↑ Sorry I'm a bit confused. Right now I have all this equity on my current primary residence and mortgage remaining is $100k. There's not much mortgage interest on a $100k mortgage. So if I change it to rental property and rent it out, I will not have much mortgage interest to deduct. And I would have capital gain from the rental income.

On the other hand, the mortgage on the new primary residence will be huge and I will be paying a lot of mortgage interest on it that's not tax deductible.

What can I do here?