Just after some quick advise on refinancing option.
Currently I have a mortgage on IP and only have $42K left. This is not linked to a offset account, as originally I didnt need it but things have changed.
I have 25K in another bank account, and was wanting to refinance this to have the offset available. My current lendor wont do this as I need to be above 250K. To refinance to another instutition will cost approx $700. I do have the redraw facility available on the current loan though.
Is it beneficial to take the 25K off the home loan and reduce it as much as possible or just pay minimum repayments due to tax benefits? or should I pay the $700 to refinance to an offset account? If I just take the 25K off my loan and then need to redraw, this is not tax deductible is it?
Currently dont have a PPOR as we rent for $15 a week. Am looking at purchasing another IP soon as well.
thanks
Mark.Interest on $42,000 is only about $3780 per year. If you had $25,000 in a offset account you would save $2250, so it may be worth setting up, even though it is a small loan. Depending on the value, you may also want to set up a LOC at the same time, taking the total loan to over $250,000 and maybe even getting a discount on the rates – and have the LOC for future investment purposes.
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
Hi Mark
Couple of questions all rolled into 1 post here so i will try and answer them individually.
Firstly refinancing merely to obtain an offset account on such a small loan would probably not be a viable consideration due to the saving not being great enough.
Remember when you refinance it is only the funds used for investment that are Tax deductible and therefore merely by refinancing and withdrawing capital does not make the loan interest a deductible expense.
Obviously if you intend to use the equity for another IP then Yes correctly structuring the loan with an offset account is a real consideration. Any loan costs for refinancing or mortgage costs incurred with the new IP purchase are Tax deductible and can be claimed over a 5 year period or the term of the loan whichever is the lesser.
Whilst you are currently renting at a nominal rent do you think there is any likelyhood that you would purchase a PPOR in the near future. If the answer is in the affirmative then there are other considerations to maximise your deductible debt and minimise the non deductible expenses.
All in all additional information is probably need to advise you further.
Richard Taylor | Australia's leading private lender
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