This might be something that has come up before but I have a suggestion re the use of offset accounts to give flexibility.
We sold some IP’s and a PPR and have parke the money in the offset account. If we move then the loan on our current PPR is maximized but while we are here the laon is effectively paid off due to the offset interest.
This gives us a lot of flexibility; we have had the problem before of too much equity on an IP that was a former PPR of ours and then a big loan on our new PPR.
I know there are other ways to do this but it seems easy and cost effective.
TC
TC,
Very good idea.
Cheers,
Simon Macks
Mortgage Broker
http://www.mortgagehunter.com.au
0425 228 985Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
Hi TC,
Yep – pretty basic but effective.
We are doing something similar with our PPOR loan – and when that is paid off we will shift the offset facility to one of our IP loans or possibly our equity investment loan (loc).
Derek
Sorry, but I must be having one of those days.. I totally do not understand what was said in this thread. Could you maybe please re-word it slightly as I believe it will apply to me.
thanks
Dan
Hi Dan,
An offset savings account enables you to link a savings account with a loan. As a result your monthly interest bill is proportionally reduced.
Eg A loan of $100K would attract an annual interest bill of $7K or $583. If you have the same loan with an offset savings account holding $10K then your interest is calculated on $90K. As such your annual interest bill would be $6300 or $525.
Your bank should be able to make the link for you.
Derek
It is more than that Derek.
It is about taxation effectiveness as well. A redraw is a new loan and the purpose of it will determine tax deductibility.
An offset doesn’t affect the loan and you can use it as you will.
Cheers,
Simon Macks
Mortgage Broker
http://www.mortgagehunter.com.au
0425 228 985Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
The point was trying to clarify was how the LOC/offset account can be transfered from place to place.
I have an IP that was my original PPOR. There is a lot of equity in the IP that I want to “transfer” to my new PPOR. I have not been able to think of how to do this. The original post hinted this was possible.
So how can I do this?[
]Dan
I think the LOC is more effective of Off set a/c, Isn’t it?
Cheers
Julian[
]THERE IS ALWAYS A BETTER WAY!
I have an IP that was my original PPOR. There is a lot of equity in the IP that I want to “transfer” to my new PPOR. I have not been able to think of how to do this. The original post hinted this was possible.
So how can I do this?
Dan, i don’t think it’s possible because it’s all about the purpose of the money, not the security.
But i think the point was that if you had the money, an offset account is a great option to park it in.
If you’ve sold an IP, you can park the proceeds into an offset account which is linked to your home loan.
Example, if you have $70k cash from the sale of an IP you can (amongst other things) either:
– Deposit it into a term deposit earning 5% which you’ll have to declare and pay tax on.
Not a good option.– Pay it off your PPOR loan which means you can only access it again by redraw.
A good option because you’ve then reduced your non-deductable debt by $70k.– Deposit it into an offset account against your IP loan on which you pay 7%, effectively earning you the same amount.
The best option because you have the flexibility to use it when you like and it’s putting your after tax dollars to better use.
Of course the whole idea is to have the least amount of non-deductable debt (loan on PPOR, car loans, personal loans, credit cards etc) outstanding.St George give you an ATM card with VISA (debit) attached to your offset account so that you can have your $70k accessable from any ATM machine or a VISA transaction – imagine the frequent flyer points you’d get!
Julian re: the LOC as an offset account, i think that you could probably do this, i.e draw money down from your LOC, e.g $50k and then park it in an offset account against your PPOR.
But i’m not sure if there’s much point in doing this because then you’d be paying interest on the $50k which isn’t tax deductable because it’s not for the purpose of investing and earning you a taxable income.
So effectively you’d be paying 7% interest money that’s being used to earn you 7%.
Anyhow, this is my understanding of it, but perhaps someone more knowledgeable can confirm any of this.
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