Could anyone tell me what is the difference between a mortgage offset account and an existing line of credit. What are the advantages and disadvantages of both. We are applying for a loan and not sure which one to get.[blink]
A LOC is like a credit card. You will pay interest on what is drawn. Your repayments are just the interest plus whatever you choose.
An Offset is another account where you can place funds which “offsets” the interest on the loan. You still have to make the original repayment regardless of the amount in offset – the extra above the interest reduces the principal.
An offset generally has a cheaper rate attached, especially if taken as part of a professional package.
Hope this helps,
Simon Macks
Mortgage Broker
http://www.mortgagehunter.com.au
0425 228 985NODOC Loan – 65% Loan – No questions asked! 6.85% Rate!!
Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
Thanks for reply. If you have a LOC does this mean you can buy and sell houses using the one loan and not having to apply for a new loan every time?
If the LOC was big enough then yes.
If you were planning on holding them long term I would go for a loan secured by the new property. You will be able to go further this way.
Cheers,
Simon Macks
Mortgage Broker
http://www.mortgagehunter.com.au
0425 228 985NODOC Loan – 65% Loan – No questions asked! 6.85% Rate!!
Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
There are also tax implications. Any money paid into a LOC or homw loan with redraw is considered by the ATO to be a repayment. When you take the money out again it is considered borrowins and the purpose you took the money out for determines whether the interest on this part is deductible or not.
Terryw
Discover Home Loans
North Sydney
[email protected]Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
My understanding with the offset account was that funds could be placed in and taken out of the account without affecting the deductability of the interest.
Redraws were a different matter though. Is this correct?Cherie
Hi Cherie,
To clarify, an offset is a different product altogether to a LOC or a redraw,
An offset will not effect deductibility of interest, where as a LOC or redraw generally will.Regards
Steven
Mortgage Broker[email protected]
http://www.mobilemortgagemarket.com.au
Ph:0402483216
Ph:1800 820 500
VICTORIAPLEASE note comments made should not be taken as specific taxation, financial, legal or investment advice.
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