Hi there,
Could someone pls explain the differences and the pros/cons between having a loan with redraw facility, and having one with an offset account.
thanks,
CarlinFrom an interest saving point of view, they are both the same. But from a tax perspective totally different.
If you use a redraw, you can get inot trouble. Each time you place money in the account, you are paying down the loan. Each time you withdraw money, you are borrowing new money. So you can probably see that deductability will depend on what you use the money for.
If you use a 100% offset account, you are not paying any extra off the loan, but placing the money in a separate account. So when you take money out, you are not borrowing more money. The interest on your loan would increase, and the deductability wouldn’t be effected.
Of course, if you just have a home loan and are not investing, deductability would not really matter.
Terryw
Discover Home Loans
Parramatta
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Thanks Terry. Just want to check I’ve got this right –
Assume you had a PPOR with alot of equity, and the outstanding home mortgage was set up with a principal and interest loan with offset account.
Could you therefore pay the minimum amount required into the mortgage, and make extra payments into the offset account (thereby reducing interest repayments)? Then, when you found a suitable investment, could you withdraw from this offset account to fund the deposit?
Is this what people commonly do?
And if the above scenario is possible, why then do people bother with LOC loans as a means to access extra funds ?
You could do that, but the extra interest incurred would not be deductible. Why? because you are not borrowing, you are taking from a savings account.
In this case, it would be best to approach your lender and ask for a separate loan securred against your home, and use this money as deposit for the new property.
Terryw
Discover Home Loans
Parramatta
[email protected]
Sign up to my mailing list.
Just send me a blank email, with “subscribe†in subject line.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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