I think this may have been touched on before so apologies if I missed it. Can you property gurus help?
Current residence worth $360 – $380K
Current Mortgage $200K P & I – no off set account
Redraw available up to $326K
Will rent for $300.00 PW
Lived here 3 yearsI am planning to reduce the mortgage to $20K, soon then in about 12 – 18 months redraw ( for personal needs) thus increasing the mortgage to about $80K. I will then rent the place out and throw extra cash toward the mortgage to pay it off in about 5 -7 years.
After reading a couple of posts i got the impression it is better to place the funds in an offset account rather than directly off the mortgage for tax reasons. I have spoken to my lender. They say for an offset account, I have to change the loan at a cost of $150.00 and they will revalue the place at thier cost.
If they do so I believe my redraw up to $326K will fall as the place has dropped in value.
Going foreward I plan to buy more IP's and think it would be good to have that redraw figure available.
So..
Would you go the offset account path or leave things as is? Once I rent the place out the redraw facility would only be used for rental property expences if at all.Sorry for the length but want ed to give you a full picture.
Cheers
Swany
Hi Swany,
If it's your PPOR then I don't see why having an offset account would make much difference unless you are being charged to redraw. It's been a while since I have operated an account like this but I remember we used to get charged to redraw but not to deposit funds. Can you redraw and deposit money into the loan account without any bank fees? If so then what's the point changing? Let us know what the conditions of the redraw facility are?
Cheers, Ian
Hi Ian,
No redraw fees….all my income goes direct into the loan and at the end of the month withdraw to cover credit card living expences.Cheers
Swany wrote:Hi Ian,
No redraw fees….all my income goes direct into the loan and at the end of the month withdraw to cover credit card living expences.Cheers
Leave it as it is Swany. It's acting like a LOC anyway so there is not really any difference than an offset ac. Once it becomes an IP then, as you say, look at running it to suit your circumstances at that time.
And BTW – unfortunately I'm no IP guru. Still on my P's
Ian
Thanks again Ian….you confirmed my thoughts which are also connected to my gut feel indicator.
Cheers
Swany
Hi Swany,
If you keep the same structure, when the property becomes an IP you will have to change the way you use the account, you will not be able redraw for personal use any more without endangering the deductability of the debt. Hind sight is a wonderful thing, but if you had been set up with and interest only loan and offset account from the start you would be in a significantly better situation moving forward (in terms of your structure for tax purposes). I would suggest you see a mortgage broker who knows what they are doing and also speak with your accountant re what structure is best for you moving forward.
Regards
AlistairThanks Alistair,
I plan keep the loan as P & I and not use it for any personal use from the date I rent it out as an IP permanently. If any redraws are made in future they will be for more IP's only.
As a matter on interest does the depreciation on fixtures/ fittings, appliances etc apply from the date I commence leasing the property or taken from the date of purchase?
Cheers
Swany
Swany wrote:I think this may have been touched on before so apologies if I missed it. Can you property gurus help?Current residence worth $360 – $380K
Current Mortgage $200K P & I – no off set account
Redraw available up to $326K
Will rent for $300.00 PW
Lived here 3 yearsI am planning to reduce the mortgage to $20K, soon then in about 12 – 18 months redraw ( for personal needs) thus increasing the mortgage to about $80K. I will then rent the place out and throw extra cash toward the mortgage to pay it off in about 5 -7 years.
After reading a couple of posts i got the impression it is better to place the funds in an offset account rather than directly off the mortgage for tax reasons. I have spoken to my lender. They say for an offset account, I have to change the loan at a cost of $150.00 and they will revalue the place at thier cost.
If they do so I believe my redraw up to $326K will fall as the place has dropped in value.
Going foreward I plan to buy more IP's and think it would be good to have that redraw figure available.
So..
Would you go the offset account path or leave things as is? Once I rent the place out the redraw facility would only be used for rental property expences if at all.Sorry for the length but want ed to give you a full picture.
Cheers
Swany
Hi Swany
It will cost you more in tax if you pay anything off your loan. Ideally a IO loan with a 100% offset would be ideal as you can keep your loan balance high and save interest at the same time. This will save you tax when you start to rent it out.
If you were to pay down the loan to $20,000, then your annual deductions for interest will be around $1,600. If you then increase the loan you would not be able to claim any of the extra interest. Where as if you put the money in an offset account, your loan is not being reduced so when you take the money out the interest will go up on the loan and so will your tax deductions.
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
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