How to use deposit money for IP – Offset or Put into PPOR and Reborrow?

If your interest rate is 5% and you use the offset account money you will have to pay an extra $3,750 in interest per year and this would not be deducitble.

If you paid $75k off your main residence debt and reborrowed it you might pay the same interest but would now have an extra $3,750 in deductions each year. that might mean $1,800 extra in your pocket per year for many years to come.

Make sure you split the loan before you pay it down otherwise if you deposit and redraw you will have a mixed purpose loan.

Say your current PPOR loan is $250,000 and you have $150,000 in the offset and need $75,000.
This is what you would do:

Split the current $250,000 loan into 2 portions
a) $175,000
b) $75,000

Once split pay the $75,000 from the offset into loan b). Make sure your lender won’t close the loan though. You might have to leave $100 outstanding.

Then redraw the $75,000 and pay it directly to the property purchase – solicitors trust account etc.

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If you don’t have time to do that then you will end up with a mixed purpose loan. Part of the loan will relate to the PPOR and part for the investment property so you will have to apportion the interest. This si no big deal, but it can become one if the loan is PI as each repayment will be reducing the deductible portion.

The ATO allows a mixed loan to be unmixed by refinancing and splitting. So you can do it later, but just do it quickly if the loan is PI.

BTW the B loan should ideally be Interest Only.