All Topics / Help Needed! / Line of Credit or Offset? Please help.

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  • Profile photo of itsandrewitsandrew
    Participant
    @itsandrew
    Join Date: 2007
    Post Count: 294
    May 28, 2010 - 7:46 am

    Hi,

    Once my current property deal is settled I will be in the market for a new property and a new loan.  What I want to know is what is going to be the best loan for my next deal.  I want to be able to have my loan and have access to additional funds as I would like to use the additional cash to buy a further property..  I have some cash and equity in my home that will allow me to do that.  LOC or a loan with an offset account look to be my options but they both sound about the same to me as far as usefulness goes.  Is either type going to make a difference.

    Thanks,

    Andrew

    itsandrew

    Go as far as you can see and you will see further.

    Profile photo of ducksterduckster
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    @duckster
    Join Date: 2004
    Post Count: 1,674
    May 28, 2010 - 8:38 am

    Andrew- What do you mean when you say you have cash in your home?
    Does this mean you have paid more off the loan and can redraw.
    Lenders usually let a LOC facility to 80% LVR -to work this out (current loan amount + LOC ) / Value of house = 0.80
    A LOC is a loan
    Where as an offset account is a savings account where the balance reduces the linked loans balance amount used for the interest calculated for the linked loan.
    A LOC can be useful for borrowing money to use as a deposit for the next investment property loan/ purchase
    It is a facility that can be sitting there ready for when you need a loan and then you withdraw money from it and it becomes a loan.
    However you are also restricted for a LOC by how much you can service the loc from your income / wage .

    An offset account reduces the interest on the investment loan this will reduce the amount of your negative gearing if you are negative gearing
    This reduction can be useful long term on a private loan like a PPOR / Main residence loan as it can save you interest over twenty years.

    Profile photo of TerrywTerryw
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    @terryw
    Join Date: 2001
    Post Count: 16,213
    May 28, 2010 - 10:14 am

    Generally I would recommend only using a LOC to access existing equity. This should only be used for investment expenses – no salary deposited nor any withdrawals for private expenses etc.

    For the new property I would suggest a IO loan with the deposit coming from the LOC.

    Have the offset account attached to a PPOR loan as the interest on this isn't tax deductible. All rents and wages should go into this.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://www.Structuring.com.au
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au

    Profile photo of number 8number 8
    Participant
    @number-8
    Join Date: 2010
    Post Count: 333
    May 28, 2010 - 12:35 pm

    Refer to sub-topic "LoC loan against IP" under the topic of FINANCE. There is some useful information here.

    http://www.birchcorp.com.au

    Profile photo of itsandrewitsandrew
    Participant
    @itsandrew
    Join Date: 2007
    Post Count: 294
    May 31, 2010 - 2:09 am

    Thanks all for taking the time to reply.  I have found it quite helpful.

    Duckster, I have equity I haven't borrowed against and I have some unused funding in a LOC I can draw upon.  My LVR will be 40-45% once the IP is settled.

    Terry, thank you.  I hadn't considered putting an IO into the equation in that way.

    Number, appreciate the subtopic.

    Thanks,

    Andrew

    itsandrew

    Go as far as you can see and you will see further.

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