I am looking at buying my 1st home for PPOR, and have looked at different home loan options and packages. The best rate I could find has NO offset account – only free redraw facility. The ones with offset account are of a higher interest rate. And I am trying to decide which option is most suitable – as the difference in rate is about 0.2% i.e. $800 based on a 400k loan.
Say I buy House A for PPOR with a 400k home loan. Over 5 years I pay off 60k principal and 40k “extra”.
Scenario one – in 5 years I purchase House B as an IP using the 40k “extra” as deposit, and continue to live in House A.
Irrespective of whether that 40k was from a redraw or offset account, House B has full tax deductability.Scenario two – in 5 years I purchase House B as an PPOR using the 40k “extra” as deposit, and House A becomes an IP.
IF I had a full offset account – the tax deductability is 400k-60k=340k.
IF I had a redraw account – the tax deductability is 400k-60k-40k = 300k.Is this the correct understanding?
Hi there
Welcome to the forum.
I think it’s best to keep things simple – this article I wrote for API mag explains ideal structure for someone that will convert their PPOR into an IP in the future. http://passgo.com.au/blog/25-mortgage-broker-canberra-blog/75-interest-only-with-offset-account-structure.html
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
Taking money out of redraw = new borrowings. So the interest on this will only be deductible if the redrawn money was used for investment purposes.
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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