Just trying to get my head around the following concept:
If I have say, a 450K mortgage on my PPOR.
Have say 50K in an offset account.
Does it make any difference in terms of paying off the morgtage quicker if I keep the funds in the offset account reducing my interest or pay the money into the morgtage itself?
Confused!
SM
Let us assume that your monthly repayments where made up of Principal & Interest and on a loan of $450,000 were $3500.
Interest only repayments on such a loan were $3,000 meaning a principal reduction of $500 / month.
Now with $50,000 sat in an offset account your monthly P & I repayment would stay the same however your interest would only be calculated on $400,000 meaning interest repayments of $2666.
The principal reduction is now $834 / month meaning you loan is repaid quicker.
Please note that the these figures may vary each month as the principal balance falls, the number of days in the month and the actual daily balance.
Hope this clarifies the confusion.
Richard Taylor | Australia's leading private lender
Hi Richard,
Just wanted to confirm my knowledge. So with an Offset account, is there any point of moving the additional cash from offset account into mortgage/loan account except for personal reasons to manage the money (eg. would need to redraw instead of instant access to cash).
Or if you want to use the cash for a deposit on an IP, would it be right in saying that if the $50k was put into your PPOR mortgage/loan account, then you drew on that to buy an IP, then that $50k you drew, the interest incurred on PPOR loan would be tax deductable against the IP. If so, I assume this would not be the case if you drew the $50k from an offset account on a PPOR?
Thanks
JasonQlds007 wrote:SMLet us assume that your monthly repayments where made up of Principal & Interest and on a loan of $450,000 were $3500.
Interest only repayments on such a loan were $3,000 meaning a principal reduction of $500 / month.
Now with $50,000 sat in an offset account your monthly P & I repayment would stay the same however your interest would only be calculated on $400,000 meaning interest repayments of $2666.
The principal reduction is now $834 / month meaning you loan is repaid quicker.
Please note that the these figures may vary each month as the principal balance falls, the number of days in the month and the actual daily balance.
Hope this clarifies the confusion.
Jason
If you wished to use the $50K for a deposit on an IP then you would be better off paying down the capital on the loan and then split the loan into a separate account and borrowing $50K for the deposit or to defray the purchase price.
Dont use the redraw as the original purpose of the funds will not satisfy the ATO.
All in the planing and structuring.
Richard Taylor | Australia's leading private lender
You must be logged in to reply to this topic. If you don't have an account, you can register here.
