wow… loans.com.au these guys mean business… blackboard special…apparantly best rate since 1950s…
when can we expect others to drop?
Is the offset account an offset account or a redraw account called an offset? There could be a big effect if the loan is investment related.
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
Terryw wrote:Is the offset account an offset account or a redraw account called an offset? There could be a big effect if the loan is investment related.Hi Terrry,
I am interested in your update….what effect will it have if Investment loan has offset or redraw account linked to it..
Cheers
To keep it simple, so you had a $100,000 loan for an investment property.
You thought you would save interest by parking your $20,000 savings in the offset/redraw.1. If it is an offset
You pay interest on $80,000. This is fully deductibleYou later take out $20k to use as deposit on the new PPOR you will buy.
Interest on the loan is now $100,000. This is fully deductible.or
2. If it is a redraw
You pay interest on $80,000 and this is fully deductible.You later take out the $20k to use as deposit on your new PPOR.
This is treated as new borrowings.
Because it was borrowed for a private expense the interest on this loan is not deductible.So now you have a loan of $100,000 but only interest on the $80,000 part is deductible.
This mistake has cost you about 5% x $20,000 = $1000 in lost deductions each year.Furthermore now you have created a mixed loan. Your $100k investment loan is part investment and part personal. This creates further problems, especially if you were to try to pay off the private portion first – it is impossible. You would have complex mathematical calculations to do in apportioning interest and the only way to fix it would be to split the loan into 2 and start again – once you calculate the exact portions.
Imagine having an extra $1000 in deductions each year for 30 years, this would greatly help pay off your home loan sooner.
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
Terryw wrote:To keep it simple, so you had a $100,000 loan for an investment property. You thought you would save interest by parking your $20,000 savings in the offset/redraw. 1. If it is an offset You pay interest on $80,000. This is fully deductible You later take out $20k to use as deposit on the new PPOR you will buy. Interest on the loan is now $100,000. This is fully deductible. or 2. If it is a redraw You pay interest on $80,000 and this is fully deductible. You later take out the $20k to use as deposit on your new PPOR. This is treated as new borrowings. Because it was borrowed for a private expense the interest on this loan is not deductible. So now you have a loan of $100,000 but only interest on the $80,000 part is deductible. This mistake has cost you about 5% x $20,000 = $1000 in lost deductions each year. Furthermore now you have created a mixed loan. Your $100k investment loan is part investment and part personal. This creates further problems, especially if you were to try to pay off the private portion first – it is impossible. You would have complex mathematical calculations to do in apportioning interest and the only way to fix it would be to split the loan into 2 and start again – once you calculate the exact portions. Imagine having an extra $1000 in deductions each year for 30 years, this would greatly help pay off your home loan sooner.thanks Terry, that makes sense. but one thing you've assumed in your scenario is that 20K will be used to fund PPOR(for personal use).
Let's assume if this 20K was only and only used to fund deposit for next IP purchase, then mixed loans doesn't come in question, as both $80K + $20K have been used for IP purchases.
Redraw options as $20K will be considered as new borrowings, are you suggesting bank will calculate interest on $80K and $20K as two separate account/statements, i thought they will calculate this as $100K loan.
I think, having option of Offest /Redraw against IP loan is fine but i think how you use that money (20K) is important, for personal use (accounting nightmare) or Investment purposes (ok to do i think).
I Like to get your thoughts on that,.,.,.pls
cheeers
Yes, if redrawn money is used for investments then little problems for the moment. Problems can occur if down the track one proeprty becomes a main residence or perhaps one property sold.
Bank will treat as one big loan. You will have the burden of apporitoning interest.
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
You must be logged in to reply to this topic. If you don't have an account, you can register here.
