Can someone help me understand this, seems to good to be true.
Say I want to get a 50k loan with an offset account..
Any savings in the offset collect the same interest as the interest payments on the remaining balance?
say interest rate is 10%
i have 35k from day zero in the offset collecting roughly $3500 pa in interest. My interest repayments (i assume its IO??) are only $15k by 10% = $1500.
It seems as long as i have 51% of the loan value in my offset, its cheap money?
what are the cons, am I missing something?
Say I go to get the 50k loan? will they give me 100% when I have 35k on the sidelines?
Seems you are a bit confused.
If you borrow $50K at 10% the interest per year would cost you 5K.
If you had $35K in the offset account you would only pay $1500 interest.
You don't GET money on the money in the offset account, it just saves you interest you owe. But yes it is better having it there are saving 10% than having it in an account and getting (say) 6% THEN paying tax on that.If you have the means to repay the loan the amount you have in the bank is not detrimental. Depends on the purpose of the loan also.
I see. So the money in the offset account lowers the repayment costs?
but as soon as the money is out of the account and used for another purpose say a deposit on another property the repayments will go back up?correct.
You pay interest on the difference between the amount owing on the loan and the amount in the offset account.
The reason people have an offset account instead of just paying down the loan is that the money is yours to take out whenever you like.If you decide to make the PPOR into an IP you maintain the tax benefits of the whole loan.
Hope that helps. It can get a bit confusing.
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