Have we made a mess of our loan structure?

Hi, Investor Sponge

The wife and I have the very same idea as well, as we have just purchased our first IP, and plan to buy our next PPOR in a few yrs time and covert current PPOR to 2nd IP.

What I would do is continue to keep my spare money in the IP's offset account. Not ideal as it reduces tax-deductible debt, but better than putting money into a savings account; at least have easy access to the cash. Some lenders allow a limited amount of extra repayments when on a fixed loan, so if I can put any money into your PPOR fixed loan, I would do that.

Once PPOR fixed loan expires and it goes back into variable PI loan, I would take all money out of the offset and put into the PPOR loan to reduce non-tax deductible debt, assuming a transactional loan account that allows for easy redraw of extra repayments. Continue to work on reducing PPOR loan while not changing anything else.

When converting current PPOR into 2nd IP, I will then refinance the PPOR loan with current or new lender, follow Richard's suggestion and take out IO loan with offset account, hopefully ay 80% LVR ro avoid LMI. Move into new PPOR and start all over. Revalue IPs every 2-3 yrs to 80% LVR, take out extra equity and leave in offset account for future IP use. No interest paid while money stays in offset account. Only cost are the revaluation fee and slightly increased repayments.

Regards
Daniel

It is not an ideal set up, but you are stuck with the fixed.

I would suggest you change all loans to IO, if not already, – will have to wait for the fixed period to expire. Then set up the offset on the one you are living in. If there is enough equity at this stage, then set up a LOC as well and use this for investment expenses.

When you decide to buy the new one, reassess.

I also would not suggest paying down any loans as you will want all spare cash for the new one.

Hyrdramax

The offsets are excellent products, but you can take it one step further by borrowing for actual investment/business expenses (from the LOC). This will leave the cash you would have used in your offset account saving non-deductible interest while increasing the deductible interest. Overall the interest amount should be the same, you are just increasing the deductible portion. So the LOC could be used to speed up profitability.

All salaries and rents and other incomes should be placed into the offset. You can also add one of those interest free credit cards with reward points so that your money stays in the offset longer when you use the card for expenses. You also get points which you could use for gift vouchers etc. This all adds up when you are paying rates, insurance etc for many properties.

The only disadvantage with the above is that you will gradually build up large sums of cash in the offset account and some people can be tempted to spend it when they otherwise wouldn't. You need to be disciplined.