All Topics / Help Needed! / Refinance from BankA to BankB-80% of extra equity going into an offset account!

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  • Profile photo of PimobpiPimobpi
    Participant
    @pimobpi
    Join Date: 2013
    Post Count: 60

    Hi,

    I know that there has been a lot of information regarding offset accounts & LOC. I can’t find the answer & would like to know if anyone can?

    I was told today that I could refinance my investment Land loan from BankA to BankB and that 80% of the new released equity will be directly deposited into an offset account of that new Land loan.

    I thought that the released equity was only able to be made available as a LOC and is not deposited as cash into an offset account. I must be incorrect. Can someone confirm the above?

    eg: BankA current Land loan is: $300K.
    If refinanced to BankB (which values the land higher) BankB Land loan will be $350k & that the $50k will be deposited into an offset account of the new refinanced Land loan.

    Will releasing equity in this way get non-deductible debt mixed up with my tax-deductible debt?

    Thanks.

    • This topic was modified 9 years, 7 months ago by Profile photo of Pimobpi Pimobpi. Reason: added
    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,213

    Yes you could borrow extra and have the cash deposited into an offset account.

    But, better not to do this as you will run into tax problems. use a LOC instead.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://www.Structuring.com.au
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au

    Profile photo of PimobpiPimobpi
    Participant
    @pimobpi
    Join Date: 2013
    Post Count: 60

    Thanks Terry, I will definitely take your advice.

    I suspected that something didn’t ‘feel’ perfect about the scenario.
    I would use that extra equity to help fund a construction loan (on the same block) so I have to get it right from the start.

    Cheers & wishing even more wealth to you.

    Profile photo of PimobpiPimobpi
    Participant
    @pimobpi
    Join Date: 2013
    Post Count: 60

    Terry or anyone else in the know,

    Funds taken from the LOC & used for investing would incur interest & usually at a slightly higher rate.

    I understand that mixing money that’s coming in and the money coming out of the LOC is very unwise: such as depositing my income in the LOC and then using some of that money to buy groceries etc.

    Is it correct to say that I pay back the LOC in part or in full, then only extract money from it again (in part or in full) for other investment purposes?

    Thanks.

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,213

    Is it correct to say that I pay back the LOC in part or in full, then only extract money from it again (in part or in full) for other investment purposes?

    Thanks.

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    This sentance is unclear.

    If you have a LOC with a limit of $100,000 but a balance of $0 and you go and buy a golden potato peeler for $1000 the balance is ow $1000 and this is a private expense. No interest deductible.

    But if you go and deposit $1000 into the LOC you will be paying the loan down to $0 again, so if you borrowed $50,000 for a deposit then the interest would generally be fully deductible as there is no mixing.

    But if you borrowed $50,000 before paying pack the $1000 it would be a mixed loan and the deductible interest would be 50000/51000 x100 = aboout 98%

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://www.Structuring.com.au
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au

    Profile photo of PimobpiPimobpi
    Participant
    @pimobpi
    Join Date: 2013
    Post Count: 60

    The ‘golden potato peeler’ example is a classic :).
    Although my question was unclear, you have answered it well.

    Take care.

    Profile photo of Jamie MooreJamie Moore
    Participant
    @jamie-m
    Join Date: 2010
    Post Count: 5,069

    Hiya

    Is that $50k being used for IP purposes down the track? If so – simple solution is to put the $50k back into the loan and redraw for future use when needed (just don’t redraw for non deductible purposes like trips to disney land).

    Cheers

    Jamie

    Jamie Moore | Pass Go Home Loans Pty Ltd
    http://www.passgo.com.au
    Email Me | Phone Me

    Mortgage Broker assisting clients Australia wide Email: [email protected]

    Profile photo of PimobpiPimobpi
    Participant
    @pimobpi
    Join Date: 2013
    Post Count: 60

    Hey Jamie,

    OK, so trips to Disney-Land are not deductible, I’ll book Hawaii instead. :P

    Thanks for adding extra input – clever.
    The 50K will help fund a small portion of my intended development project.

    I was not originally looking to extract equity – I was chasing a lender that offered residential loans for development projects greater than 2 dwellings on the same plot. It so happens that I can release some equity from my plot & I was looking at the best way of doing that.

    I originally thought that equity could only be released as a LOC setup until I was offered my equity as a deposit into my offset account.
    I now understand that the purpose of a loan and that the intention of a loan are 2 very different things. I’ve simply gone for the LOC (as Terry has suggested) & will use the funds for nothing else but for development purposes.
    BTW, Terry is a gun!

    Cheers Jamie – I’d like to add that many forum members (including myself) are learning tonnes from your entries alone. Can you download all of your knowledge to a USB stick? Future industry: Brain Income streaming *grin* Keep well.

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