I to also need some advice how to set up the loan structure any ideas. Should i have persona line of credit against home for personal expenses and another line of credit for investment purposes? How doe the 100% offset work against the home LOC or Investment LOC anyone tell me the pros and cons?
thanks[bonjour]
Hi
I would also be interested in any response. About to buy my 3rd property, at the moment my loan is P & I, but am deciding whether to switch to LOC when purchase is made.
Cheers
Why do you need a LOC for expenses? Probably only would need one if you are spending more than earning – living off equity.
Generally an offset account is good as you can place all spare cash in there. This reduces interest – get the offset against your homeloan.
If you have equity in your home or investment, you can set up a LOC to access this. But only use the LOC for investment purposes.
You then draw on the LOC for all investment expenses and pay only interest per month. eg if rates are due borrow from the LOC to pay the rates.
Deposits for further investments can come from the LOC.
You should not take any investment expense from the offset as this means more interest on your home loan which is not deductible.
You can also use a credit card with an interest free period (with points too) to pay all expenses. This means your spare cash stays in your offset account longer and you save even more interest.
Terryw
Discover Home Loans
[email protected]
Send an email to get my newsletter.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
TerryW,
My situation is as follow,
Currently renting. Have 2 investment properties with $200,000 equity. Just short of being CF+. Don’t have any debt apart from $8,000 on a credit card.
Have been advised that a LOC is what I should get. If I used a 100% off set account and not a LOC would there be any difference in how quickly i paid off the loan? Not sure I’d be able to manage the LOC without getting into trouble. If I used a LOC, when i paid off the credit card each month that i would be using for living expenses how does this affect the interest I can claim?
Sorry for all the questions but have been reading a few different options and am becoming confused.[weird]
Hi Barbara
Why were you recomended a LOC? If it is to access the equity on your investment property for further investments, then that is ok.
BUT if they want you to pay all of your income etc into the LOC secured against an investment property, then this would be absolutely dangerous!!!!!!
According to the ATO, Every cent that goes into the LOC is a repayment. Every withdrawal is therefore new borrowings.
So placing your wage into the LOC means you are paying it down quicker. Interest is decreasing and Tax deductions are decreasing as a result. Every withdrawal for non business/IP related things (such as groceries) means the interest on this portion is not deductible.After a short time you will not be able to claim any interest, but will still have a large loan left.
In this case a 100% offset account would preserve the deductibility of interest.
Terryw
Discover Home Loans
[email protected]
Send an email to get my newsletter.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
Thanks Terryw,
I was unaware of the affect this would have on the interest. You have saved me from a costly mistake. The 100% off set is sounding better and better.[inlove][inlove][inlove]
Sorry i am only paying interest only on my own PPOR because i want to later on transfer it to a trust, then buy another PPOR. I have a personal LOC just for personal expenses etc. I also have another LOC against my IP which covers the negative shortfall.
Just wanted to know if any difference between Offset and LOC but now i understand.
thanks.[biggrin]
You must be logged in to reply to this topic. If you don't have an account, you can register here.
