Thanks to everyone.

It's clear to me now.

I have used redraw many times since first establishing the loan and I reckon I would be pretty unlucky to get an ATO auditor to be so meticulous as to go through everything.

I now plan to convert existing loan to offset before using the extra payments for deposit on second IP. I will set up the second IP loan with offset also (no cross-collateralisation between IPs). Also will make both loans IO.

And yeah definitely shop around for best deals. I agree with you Terryw about CBA. Time to break up with the bank!

Thanks everyone for their input.

RZ

I don't have a MISA just a standard redraw and no offset. I just wanted the least amount of features. At the time I figured that would mean that the bank would be more flexible on negotiating a better interest rate.

Obviously I didn't know back then about the way the ATO treats the use of redraw funds when coming to claiming interest deductions. Otherwise I would have gone the offset.

Actually to be honest I still do not understand why having the extra funds in an offset as opposed to a redraw facility makes any difference at all to the ATO. Why should someone be penalised for having redraw facility as opposed to an offset facility if they are in essence the same when it comes to interest liability calculations or am I missing something.

If they are the same thing has anyone sought a private ruling from the ATO on this?

In the mean time (while pondering the above) I will read my current loan contract before going out to the lenders to see what I can get…….

Cheers RZ

Hi Michael,

Thanks for taking the time and the detailed response.

I was sort of thinking that I may have done the wrong thing. Oh well, live and learn I guess. That is the beauty of this forum. I can benefit from others knowledge and they can benefit from my errors….

They rate discount of 0.7% was what I obtained 6 years ago and I expect you are right about being able to obtain a better one nowadays.

So I'm off to the bank to see what they have to say about the offset.

So once I get an offset account do I then just transfer over the redraw monies to the offset account and all is now good with the ATO as far a deductability of interest goes?

Is it normal for people to have their salary put into their offset account or do people have a separate "living money" account which receives their salary then they transfer over what the max they can each month to the offset account?

Any further comments appreciated.

I would like to optimise my position this time aand not be such a goose!

RZ

Thanks for the quick replies. Always nice to know someone is out there.

I haven't even thought of renting out the 2nd room……..pretty obvious to some I guess but after years of single living common sense becomes less common. Definitely the easiest way to reduce costs.

The place is a little tired after 5 years of being rented out so will definitely try to turn my not so handy hands to simple touch up stuff.

If I understand things right I could still benefit from the six year rule even if I move into it now and use it for a PPOR but sell it within 6 yrs of original settlement. I have not had any PPOR to date. Is my understanding right?

Not that I'm thinking off selling but nice to know all the options.

RZ