FHB PPoR>IP offset account loan?
- Thread starter barry2104
- Start date
hehe ok guys settle down. I honestly appreciate all the comments from you - they've certainly made me think deeper into what i could/should do. Although I'm not 100% set on making the plunge and buying my first home yet, if it was to happen in the near future, you're correct in assuming that I would (most likely) upgrade to a bigger PPoR in 2 years time, turning the first purchase into an IP.
After further thought (but not yet doing the maths), my brain is leaning towards getting the BankWest rate tracker for the competitive interest rate, and then add the offset option for $15/month extra.
> I'm aware it changes to the Lite home loan after the 3yrs, which has no offset account and a higher interest rate, but as long as I change banks/loans (to maintain an offset account), or at least pull out all the funds IN the offset account before it expires, then I should be able to have a nice sum to use as a deposit for PPoR#2. Not sure what i'd do with the money between pulling it out and using it for PPoR#2 if there was a 6-12month (or longer) delay before buying again, but haven't put much thought into that yet
Not sure if it makes much of a difference but I'm the type of person who lives well within their means, and earns what I consider a fair crust. I've managed to save this $80k in about 2yrs of double-income (me + spouse), so for this reason I'm thinking to forget about paying only 10% deposit & getting hit with LMI. I'd rather pay the 20% now and be confident that in (at least) two years time I can "save" enough in the offset account for a deposit, if not completely then at least in combination with equity on the first PPoR?
i say (at least) because the plan for now is to live O/S for a year or two (renting), before coming back and buying PPoR#2, so I could have more like 3yrs of offset-savings available to use as a deposit....
again, thanks for the feedback - keep it coming!
<insert witty quip here>
After further thought (but not yet doing the maths), my brain is leaning towards getting the BankWest rate tracker for the competitive interest rate, and then add the offset option for $15/month extra.
> I'm aware it changes to the Lite home loan after the 3yrs, which has no offset account and a higher interest rate, but as long as I change banks/loans (to maintain an offset account), or at least pull out all the funds IN the offset account before it expires, then I should be able to have a nice sum to use as a deposit for PPoR#2. Not sure what i'd do with the money between pulling it out and using it for PPoR#2 if there was a 6-12month (or longer) delay before buying again, but haven't put much thought into that yet
Not sure if it makes much of a difference but I'm the type of person who lives well within their means, and earns what I consider a fair crust. I've managed to save this $80k in about 2yrs of double-income (me + spouse), so for this reason I'm thinking to forget about paying only 10% deposit & getting hit with LMI. I'd rather pay the 20% now and be confident that in (at least) two years time I can "save" enough in the offset account for a deposit, if not completely then at least in combination with equity on the first PPoR?
i say (at least) because the plan for now is to live O/S for a year or two (renting), before coming back and buying PPoR#2, so I could have more like 3yrs of offset-savings available to use as a deposit....
again, thanks for the feedback - keep it coming!
<insert witty quip here>
Gidday Steve,
Sorry if you misunderstood my intended tone, it's why I started with no offence intended. I was merely mirroring your words, adding of course, the no offence intended because I thought your post was a little edgy (or as you call prefer to call it, smartass).
The spelling correction was simply a force of habit, please feel free to reciprocate, no offence was intended and none will be taken when you do the same to me (spelling, grammar, math or opinion).
Putting the apologies aside my answer is still the same as that in all posts on this aspect.
The PPoR is still a PPoR at the time of the redraw and will be converted to IP at a later stage. My understanding is that the drawn down debt is the basis of the principle for the purpose of calculating the deductible interest for the newly converted IP. That seems to also be reflected in the posts around here, so I'm lost as to why it has popped up as an issue for you. Again however, individuals are advised to get their own taxation planning advice.
In terms of who I am, my profile explains it best in that I am a mortgage researcher and consumer advocate. I take both of those functions seriously and aim only to clarify misconceptions, ideas I don't understand and to understand views that I currently don't and may never share.
I found this forum after a person claiming to be a Somersoft member took some interesting, if inaccurate swings at me elsewhere. But that hardly matters as that will sort itself out, well outside of this forum. For the record, it wasn't Richard and this isn't some kind of grudge match. Once I poked around the site, I was hooked. Some of the insights are remarkable.
However, I will wherever possible, do whatever is possible to dispel falsehoods once they are confirmed to be so. If this involves a professional here, or anywhere else, I refer those complaints together with detailed files to the bodies which can address them. I do of course, continue to drive them as hard as I can to the outcome that those bodies determine are appropriate. From time to time, they include ASIC, ACCC, MFAA and FBAA. I'm not interested in shaming people, I just think bad practice hurts both borrowers and those who work to higher standards alike.
I hope that at all times, people find me respectful and I once again apologise for any offence caused, that was not my intention. I also appreciate your input.
You can contact me privately via email if this doesn't allay your concerns; however I feel no need to promote who I am or what I do. People should best judge me by the information I offer here and how I behave.
Apologies to everyone here for hijacking the thread, however I didn't want any concerns remaining unaddressed.
Back to the debate about just how the advice really stacks up... Any takers?
Protect your interest!
Michael Lee
Sorry if you misunderstood my intended tone, it's why I started with no offence intended. I was merely mirroring your words, adding of course, the no offence intended because I thought your post was a little edgy (or as you call prefer to call it, smartass).
The spelling correction was simply a force of habit, please feel free to reciprocate, no offence was intended and none will be taken when you do the same to me (spelling, grammar, math or opinion).
Putting the apologies aside my answer is still the same as that in all posts on this aspect.
The PPoR is still a PPoR at the time of the redraw and will be converted to IP at a later stage. My understanding is that the drawn down debt is the basis of the principle for the purpose of calculating the deductible interest for the newly converted IP. That seems to also be reflected in the posts around here, so I'm lost as to why it has popped up as an issue for you. Again however, individuals are advised to get their own taxation planning advice.
In terms of who I am, my profile explains it best in that I am a mortgage researcher and consumer advocate. I take both of those functions seriously and aim only to clarify misconceptions, ideas I don't understand and to understand views that I currently don't and may never share.
I found this forum after a person claiming to be a Somersoft member took some interesting, if inaccurate swings at me elsewhere. But that hardly matters as that will sort itself out, well outside of this forum. For the record, it wasn't Richard and this isn't some kind of grudge match. Once I poked around the site, I was hooked. Some of the insights are remarkable.
However, I will wherever possible, do whatever is possible to dispel falsehoods once they are confirmed to be so. If this involves a professional here, or anywhere else, I refer those complaints together with detailed files to the bodies which can address them. I do of course, continue to drive them as hard as I can to the outcome that those bodies determine are appropriate. From time to time, they include ASIC, ACCC, MFAA and FBAA. I'm not interested in shaming people, I just think bad practice hurts both borrowers and those who work to higher standards alike.
I hope that at all times, people find me respectful and I once again apologise for any offence caused, that was not my intention. I also appreciate your input.
You can contact me privately via email if this doesn't allay your concerns; however I feel no need to promote who I am or what I do. People should best judge me by the information I offer here and how I behave.
Apologies to everyone here for hijacking the thread, however I didn't want any concerns remaining unaddressed.
Back to the debate about just how the advice really stacks up... Any takers?
Protect your interest!
Michael Lee
Ummmmm .....
Borrow $450k and immediately stick $50k in an offset account for an extended period of time indicates the *PURPOSE* was not to acquire the PPOR.
Therefore, when it converts to an IP only $400k is an investment loan when you drag that $50k out of the offset for your new PPOR.
Maybe I missed something since this is a busy thread ?
Cheers,
Rob
Gidday Barry,
I can't write what I think of the Rate Tracker here, because it's subjective and they will probably sue me (another CBA owned asset has already waived their fist at me).
Just crunch the numbers for sure and if you get it right, they are unlikely to rank that well. It's just another intro which are all about the headline rate and being sold with a smiling face.
Protect your interest!
Michael Lee
I can't write what I think of the Rate Tracker here, because it's subjective and they will probably sue me (another CBA owned asset has already waived their fist at me).
Just crunch the numbers for sure and if you get it right, they are unlikely to rank that well. It's just another intro which are all about the headline rate and being sold with a smiling face.
Protect your interest!
Michael Lee
Thanks Rob,
Forest for the trees stuff. Your comment makes sense.
Arguably, the ATO could view the original transaction has having no purpose other than to increase tax deductibility (which on reflection, seems to be the strategy promoted).
Broadly speaking, that fits the parameters of a tax evasion scheme so there may well be far more serious implications that having the tax deduction disallowed.
Wow. Thanks for that thought Rob and yes, if you still think it's a good idea, maybe go so far as to obtain a private ruling from ATO.
Otherwise your PPoR might have bars on the windows.
Protect your interest!
Michael Lee
Am I reading this right... so every 'professional' which visits the forum and offers an opinion is now to be scrutinized and reported on by you? From accountants, to builders, to brokers, to financial planners, and the list goes on?
Gidday Steve,
My original reply/question was in no way intended on being smart. I am honestly interested where it states this. I took the time to read through the document but still cannot see (would be nice if it was written in plain English) it explained clearly in the way you were inferring. As you had posted the link I assumed I would find it in there and was a little alarmed that I believed it to be otherwise.
I may need to take time to spellcheck my posts
I asked this as from reading your initial reply I assumed you were in the finance industry. My understanding on redraw and tax deductability seem to differ from yours and I wanted to know your field of experience. It also would help non finance industry members when reading through posts. It's handy for potential purchasers to know if another member is a broker, a bank employee etc so they can see if there is any potential conflict of interest in any responses.
By the way, most investors and potential borrowers I guess could claim to be "mortgage researchers". Am I to assume that there maybe more to this role than just doing homework on mortgages. Do you also have a hand in the mortgage broking/finance industry?
All is good. Still interested in how you come to your understanding from that ruling.
Regards
Steve
Gidday Spectre,
Scrutiny? Nothing new there - you're doing it to my posts, which is fair enough. In terms of my approach, if there's no seriously questionable conduct, then there's nothing to fear.
If however, laws or codes of conduct are being broken then that's another story, however the outcome is not within my control. It seems a far more reasonable approach than simply getting on forum and slandering each other wouldn't you think?
Anyhow, I was simply responding to Steve's who are you question as best I could.
Protect your interest!
Michael Lee
Sim
Administrator
Perhaps for the benefit of everyone here, you might like to share some more of your history in relation to the mortgage broking/finance industries and your current thoughts on them?
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Hmmmmmmm, the internet is such a wonderful thing.
"""....More than an industry commentator, Michael is a home loan and mortgage specialist who continues to acheive broad recognition....."
"Michael Lee is a founder and driving force behind Mates Rates Mortgages and has been a strong advocate for borrower rights since entering the industry in 2000......."
A little hand?
If not then I'd really appreciate an answer to my original question as I'm really intrigued at you point of veiw..
Please don't get me wrong, I'm just trying to educate myself.
Not wishing to cause any conflict but to ensure Barry has a better understanding of his situation I'd just like to clarify the above. There seems to be some conflicting beliefs/misunderstandings/ideas/suggestions in answers supplied.
If Barry borrows $400k and deposits $50k out of his own funds NOT from the loans proceeds then he still has the $400k claimable when PPOR turns into IP (assuming it's IO for sack of numbers). According to a lovely lady (Loralee) in the tax office there is no ruling that states a purchaser must use all their available funds, the deductability is based on the loan amount.
Should he place his funds into the loan and then redraw prior to changing the property purpose he would lose deductability on the redraw amount (assuming the redraw was for personal purposes).
Having said this (after spending well over an hour on the phone to the ATO) it is recommended that any borrower check with their accountant or the ATO for confirmation.
Regards
Steve
If you want to deduct loan interest, the funds must be used for an income purpose.
Borrow $400k, use $400k for an IP then fully interest deductible.
Stick $50k savings in an offset means interest on the $350k balance is deductible.
Rip your $50k out of the offset for a holiday and all the interest on the $400k is still deductible because it was used for the IP.
We were talking about borrowing $450k but only using $400k for income purposes ... entirely different.
Cheers,
Rob
Borrow $400k, use $400k for an IP then fully interest deductible.
Stick $50k savings in an offset means interest on the $350k balance is deductible.
Rip your $50k out of the offset for a holiday and all the interest on the $400k is still deductible because it was used for the IP.
We were talking about borrowing $450k but only using $400k for income purposes ... entirely different.
Cheers,
Rob
Yes Rob, that's correct. As I stated as long as the offset money comes from private funds and not loans proceeds all is good.
When I was reading through all (not yours secifically) the posts I could just see it becoming confusing to some.
No worries.
I am wondering if a sticky thread on general deductibility of interest should be placed under the Tax threads.
Then issues like capitalising, offsets, etc. could be sub-threads since they are such diverse aspects.
But then again, sticky threads get very long & people cannot be bothered to trawl very far down a thread before they get distracted (myself included !).
Cheers,
Rob
I am wondering if a sticky thread on general deductibility of interest should be placed under the Tax threads.
Then issues like capitalising, offsets, etc. could be sub-threads since they are such diverse aspects.
But then again, sticky threads get very long & people cannot be bothered to trawl very far down a thread before they get distracted (myself included !).
Cheers,
Rob
