Best CURE for a hangover is to start drinking again!

Robert Bou-Hamdan
Mortgage Adviser

http://www.mortgagepackaging.com.au

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Comments made are of a general nature and should not be construed as individual advice.
© 2004 Mortgage Packaging Pty Ltd

It is interesting you say that Sooshie…

I thought I would check out the websites this week that a lot of people keep saying they can’t find anything on. In my first search and on the first page, I found a suitable property. I made an offer the next day when the agent responded to my email and following telephone discussions with the Local Council (as well as other searches etc.)

I will let you know more when it exchanges so no-one can take it before me!

Robert Bou-Hamdan
Mortgage Adviser

http://www.mortgagepackaging.com.au

FREE Finance-Related Newsletter – Click Here

Comments made are of a general nature and should not be construed as individual advice.
© 2004 Mortgage Packaging Pty Ltd

Maybe you should have used a better mortgage broker. Total costs are supposed to be discussed before proceeding. For brokers based in NSW (like myself) and I believe those in VIC, we have to get a Finance Brokers Contract signed by the borrower before submitting an application. This will set out what we are offering to do for you and what costs are involved. If this does not happen, the borrower can sue us and win easily.

Robert Bou-Hamdan
Mortgage Adviser

http://www.mortgagepackaging.com.au

FREE Finance-Related Newsletter – Click Here

Comments made are of a general nature and should not be construed as individual advice.
© 2004 Mortgage Packaging Pty Ltd

Oh yeah, is it possible to be able to subscribe to a whole category instead of just single threads within that category? I don’t know about anyone else, but I would find this very useful.

Robert Bou-Hamdan
Mortgage Adviser

http://www.mortgagepackaging.com.au

FREE Finance-Related Newsletter – Click Here

Comments made are of a general nature and should not be construed as individual advice.
© 2004 Mortgage Packaging Pty Ltd

No offence to Steven’s model, but placing the money from the investment loan into the PPOR offset account will mix up the non-deductible and deductible funds. Although it reduces the interest you pay on your non-deductible debt, it also increase the interest you pay on your investment loan. These would most likeley be at the same interest rate and you would be in the same position cost wise. In any case, if the money is used for personal reasons, it is not deductible so it is not really doing anything until it is spent. That is why I suggest using two offset accounts.

Regarding rents and expenses from your investments, you can place these where you like. The fact of the matter is that if they sit in your PPOR non-deductible loan Offset Account 1 for any period of time, this reduces your non-deductible debt. If they go into your Investment deductible loan Offset Account 2, they reduce your tax benefits.

You would receive rental statements and receipts for expenses regarding the property so accounting for these is not difficult. Basically, at tax time, you give the accountant your investment loan statement and your receipts and say this is deductible and hand them the PPOR statement and say this isn’t. You only need to pay for things out of Offset Account 1 when there is no more available funds in Offset Account 2.

If you paid for expenses straight from available funds in Offset Account 2, it is a simple case of your deductible interest expense increasing as repayments on these new investment expenses would also be interest only. You would still need to provide receipts to your account.

The model I have outlined just shows how you can keep things as tax effective as possible while leaving yourself with access to the maximum amount of available funds possible and still quickly reducing your non-deductible debt.

For your info, once the funds in Offset Account 1 is equal to the limit of PPOR Loan 1 (and the money was not from an investment loan), your non-deductible debt is gone. Drawing down on this loan would then be fully deductible if used for investment and you would still have the full $200,000 available. Any future offsetting can be done against either loan if you want to reduce your loan sizes which will also reduce your deductions (which I think is better!)

You might consider getting a seperate standard transaction account at this time for non-deductible use or to deposit income if you no longer want to offset against your deductible debt.

You might even take another Split (a small amount for personal use) and set up Loan 3 with Offset Account 3 and go on holiday or buy that new car or whatever other non-deductible spending you want to do, but keep it to a minimum!!!

I hope I have not confused anyone. If you have any more questions why I like this structure, don’t hesitate to ask. PM or email is fine if you don’t want to ask here.

Robert Bou-Hamdan
Mortgage Adviser

http://www.mortgagepackaging.com.au

FREE Finance-Related Newsletter – Click Here

Comments made are of a general nature and should not be construed as individual advice.
© 2004 Mortgage Packaging Pty Ltd

Example Structure

$500,000 Property 1 Value

$200,000 Loan 1 – PPOR – Non-Deductible – Offset Account 1 Attached

$200,000 Loan 2 – Investment Money – Deductible – Offset Account 2 Attached

How It Works

Offset Account 1 – all income from work and other investments are deposited into this account. The minimum payment (preferably interest only on all loans including PPOR) is made to Loan 1 (and Loan 2 if used).

Offset Account 2 – the full amount of the loan is deposited into this account until needed. If the loan limit is $200,000 and the balance of this offset account is $200,000, your loan repayments are zero if the loan is interest only. If any of this money is used, the interest only repayments come from Offset Account 1.

The Benefits

1. Having all funds going into Offset Account 1 helps reduce the amount of interest you pay on your non-deductible debt resulting in excellent tax benefits.

2. The funds sitting in Offset Account 1 are also available for use if required rather than making unnecessary principal repayments.

3. If you want to change the property into an investment property at a later date and you have not made any principal repayments but left the money sitting in Offset Account 1, withdrawing the funds and pushing Loan 1 back out to the limit would result in full deductibility on the whole loan amount instead of whatever would be left if you had made principal and interest repayments. Loan 2, which is still secured against Property 1 is still fully deductible as it is the purpose of the funds that establishes deductibility.

4. This structure attracts home loan or investment loan interest rates and fees rather than the usually higher rates and fees associated with a Line Of Credit.

5. This structure does not require annual review as many Line Of Credit facilities require for a fee.

6. Increasing the loan limits is usually cheaper with this structure than increasing a Line Of Credit limit.

Important Notes

* A line of credit that is 0.1% higher than the above structure costs an extra $100 per year for every $100,000 to maintain on top of the annual fee (and other fees) of a few hundred dollars usually associated with these facilities. Most line of credit facilities cost 0.5% or more than the above structure. This is a lot of wasted money to be ‘fashionable’!

* Interest Only on the non-deductible portion of this structure is not recommended for those who are not good with their money as they may find they get into trouble very quickly. These people will definately get into trouble using a line of credit as well.

Robert Bou-Hamdan
Mortgage Adviser

http://www.mortgagepackaging.com.au

FREE Finance-Related Newsletter – Click Here

Comments made are of a general nature and should not be construed as individual advice.
© 2004 Mortgage Packaging Pty Ltd

Can someone lock this topic please?

It has gone to the kids!

Robert Bou-Hamdan
Mortgage Adviser

http://www.mortgagepackaging.com.au

FREE Finance-Related Newsletter – Click Here

Comments made are of a general nature and should not be construed as individual advice.
© 2004 Mortgage Packaging Pty Ltd

TYPO – my computer has never been the same since the car accident. Misses keys all the time!

Robert Bou-Hamdan
Mortgage Adviser

http://www.mortgagepackaging.com.au

FREE Finance-Related Newsletter – Click Here

Comments made are of a general nature and should not be construed as individual advice.
© 2004 Mortgage Packaging Pty Ltd