Hi,
Just looking at the best option for loan structure for first property, which is to become our PPR.
Currently my partner and I can get a 95% LVR P&I loan from a bank which we are currently with … However, this particular bank does not offer IO with an 100% offset account.
The loan officer we dealt with said that it is highly unlikely for us to get a IO loan with a 100% offset account, from anywhere, as lenders are hestitate to provide this service for properties which will not be used as an investment. ( eg, residential.)
I am skeptical and in two minds. Firstly, I am asking if anyone knows if we actually can get a 95% LVR, IO Loan with Offset account, for a residential.
Secondly, Is it really worth the effort as the repayments for P&I a on this property are quite low anywhow? I guess we could pay off the full loan amount in five years anyhow.
Leum
Any ideas would be great!
BtW we are entitled to the FHOB – Woo hoo!
Your Bank officer is wrong as IO with 100% offset on a PPOR is available.
Richard Taylor | Australia's leading private lender
Which bank:? there are not many 95% loans left these days.
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
Terry
Did 2 with NAB this week alone.
Richard Taylor | Australia's leading private lender
Hi Richard,
the bank was Bendigo.
Ok thats probably why.
As far as I now Bendigo only go to 90% lvr.
Richard Taylor | Australia's leading private lender
Mr leumy,
Would the Bendigo bank provide a 100% offset account on an IO loan with an 80%LVR??
Tommy gun.
I think maybe yes, although I am not a position to offer a deposit of that size, so I did not investigate this.
Is there a limited number of years you can hold an IO loan?
I was playing around with the CBA online calculator tools, and the longest time you could specify was 10 years of IO on a 30 year PI loan… Is this correct? If so, is it difficult to refinance after 10 years to have another interest only period?
Also, is CBAs MISA account attached to the IO loan, or are these completely separate 'accounts' ? i.e if we had a $300k IO loan with a MISA attached, and after 5 years had $200k in the MISA (hence only paying interest on $100k balance?) … If we then used this $200k to buy a second PPR, and converted the first into an IP, is the original IO loan still $300k and completely deductible if negatively geared?
.
Interest only periods are limited. Often 5 or 10 years is the max, depending on the bank. At the end of the IO term you can ally to change it back to IO for another 5 or 10 years, but this may depend on your circumstances at the time as most lenders would probably want to see evidence of income etc.
I beleive the MISA account is not a true 100% offset account.
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
No you are right Terry the MISA is not a fully transactional offset account and therefore has significant shortcomings.
Richard Taylor | Australia's leading private lender
Oh really? That’s a surprise, they really ‘sold it’ by claiming it was 100%…
What are the significant shortcomings?
Is it possible to have your offset account through a different institution to your loan, or are they always a package deal?
Of the big 4 banks (for comparison sake only) Do ANY of them have a fully transactional offset account?
.
You can't have your offset at a different bank!
I know ANZ and Westpac have full 100% offset accounts. St George also has one, though they can be strange with 3 different options so take care. NAB also have one, I think still as do Bankwest.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
As a first property, with the aim of eventually turning it into an IP, would you recommend going with one of the big 4 and opting to use their offset account? Or is it still more cost effective to go with a smaller lender with a better interest rate, which may not have the 100% offset account associated with it?
I assume the offset account only really becomes important when you convert the PPOR into an IP, i.e is the offset account's sole purpose to reduce the non-deductible interest payable when the property is your PPOR, but to maximise the dedictible interest when you take the money out and use it as a deposit on your second PPOR?
Any clarification if this is not correct is greatly appreciated.
Cheers
Hi Adam
Firstly dont always agree that a smaller organisation will have a cheaper rate of interest than one of the larger Banks.
What may appear nice and low on the surface doesnt always look that way underneath.
One of the big advantages of an offset account is that your everyday funds are offset the interest on your non deductable home loan so reducing the amount of interest you are being charged.
One of the non Bank lenders has a 1 year fixed rate at 2.99% which initially looks attractive but a home loan is for than 12 months and therefore unless you can repay considerable chungs of principal off the debt in the first 12 months you are still going to be left with the majority of the loan a year later. The rate then increases and the whole product becomes unattractive in comparison.
Richard Taylor | Australia's leading private lender
Thanks Terry and Richard,
Are there any online websites that have a complete list of all Australian lenders who currently offer 100% fully transactional offset accounts?
I’m finding that going to each individual website is useless, and it is sometimes extremely hard to sort the advertising junk from the hard facts of the loan (i.e me previously believing CBA’s MISA was just like any other offset account…)
Richard, thanks for the ’10 reasons why you dont cross collateralise your loans’ document, it was a great read! You’re a brilliant guy offering these services to people for free…
Cheers,
.
Adam
Probably a bit much to ask for on a website.
The intricies of each product varies depending on the clients actual needs and requirements and your average website wont give you this.
Richard Taylor | Australia's leading private lender
I would stick with the major banks and avoid the non-bank lenders.
The offset account works well tax wise by keeping your loan balance high while helping you to still save interest. You should really have one from day 1 for the max benefits – esp if you are going to rent the place out later.
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
<<
Oh really? That's a surprise, they really 'sold it' by claiming it was 100%…
What are the significant shortcomings?
>>>>
No you are right Terry the MISA is not a fully transactional offset account and therefore has significant shortcomings.
<<Seems like 100% offset doesnt apply to fixed rate loans, only the SVR loans
And there is a minimum account balance of $1000 before interest offset kicks inSo what are the significant shortcomings?
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