Hello everyone, I would appreciate some advice on my situation I am in. My partner and myself are currently renting and have plans to buy our own PPOR in a year or two when we get work transfers to a better area. We currently have one investment property with 254k remaining on the loan with an offset account. The loan is IO and is fixed until November We have a lump sum of money sitting in an online savings account of 120k and I was thinking when the fixed interest rate finished we would put the 120k into the offset account with the intention to pay the debt off. Some people are giving me the advice that it is better off being negatively geared for tax purposes. So I am just wondering whether we should put the money into the investment property and continue to pay it down, eventually clearing the debt or stay negatively geared? I have also read some advice that if you pay off your investment property and keep the loan open that when you want to buy your PPOR we can take the money from the offset account and put it on our own home so that most of our debt is back on our IP and is tax deductable, is this possible?
Thanks in advance
Isiah Thomas wrote:I was thinking when the fixed interest rate finished we would put the 120k into the offset account with the intention to pay the debt off. I have also read some advice that if you pay off your investment property and keep the loan open that when you want to buy your PPOR we can take the money from the offset account and put it on our own home so that most of our debt is back on our IP and is tax deductable, is this possible?Hi Isiah,
When you put money into your offset account you are not actually paying off the debt. The total debt still remains but you are offsetting the interest that you are paying. So if you were to put the 120K into your offset account, you would still have the loan debt of 254K but would only be paying interest on 134K (254K – 120K = 134K). I think this would be the better option, I would rather pay less interest, than pay more interest just to keep it negatively geared (being negatively geared means you are losing money).
And yes you are correct. If you then want to buy a PPOR, you can then take the 120K from your offset account and use it as a deposit for your PPOR. This will then reduce the loan amount you require for your PPOR (which is not tax deductible), and increase the interest payable on your investment property (which is tax deductible). Hope this helps.
Regards,
Cubez
Thanks for the speedy reply BigCubez, I thought this to be the case
Cheers,
Isiah
Good post from big cubez.
The only thing that I would add is that if you have any debt that's non-deductible such as a personal loan or credit card debt – knock that on the head first then pop the rest in the offset.
If you don't have any other debt but the IP loan – the offset account is a good place to store it until you purchase your PPOR.
Whatever you do, don't put the cash into the loan and redraw it later – use the offset only.
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
Cheers Jaimie, and yeah no credit card debts thank goodness
Hey guys, just another quick question. I have been reading that an offset account is better for my investment property than a redraw account. The reason being taxation purposes. If I use a redraw account to pay down my debt and then want to take all the money out to buy a PPOR, the interest I am now paying again on my investment property is no longer tax deductable, however, if I use an offset account in the same scenario then the interest IS tax deductable. Could anyone shed some light on this matter as to whether this is correct?
Also the Misa account from the CBA is an offset account right?
Thanks in advance,
Isiah
Hi Isiah
It is because the act of withdrawing money out of an offset account is not a "borrowing event". A redraw is indeed a borrowing event. When you borrow money, even if it is a redraw against an Investment Property, it is the purpose of the borrowings that decides if the interest on the borrowings will be deductible. So if you "borrow" (ie redraw) money to buy a non-investment (ie a PPOR) the interest will not be deductible.
Hope this helps
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
Isiah Yes MISA is to offset accounts as the Robin Reliant was to motor vehicles.
Sure it will eventually get you there but you might get frustrated with the time taken.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Thanks guys,
Far out I almost got a redraw account on my loan instead of an offset account and that would have stuffed everything up! Thanks for the clarification people, much appreciated.
Isiah
Hi Isiah
Chances are your loan will have both a redraw facility and an offset – it's just a matter of utlising one and not the other.
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
And also a matter of not listening to your Banker who probably has no idea.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
The banks will like to increase your credit card limits, so that they can make more money out of you.
The best option is to combine all your loans against a secured asset (property), so that you will be able to negoatiate a good deal with your bank and pay lowest interest possible.
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