60k to loan or offset?

[SOULFLY3]

This may be a bit of a stupid question but ill throw it out there.

Just purchased my 2nd property and am borrowing the full amount.
now say i won $60,000 would i be better to-

1) put it all down as deposit (onto the loan to bring it down) or

2) set up offset account and pump it all in there so that in year or so i can purchase 3rd ip ?

What would be the best idea ????

please note - i want to purchase another ip asap (prob year or 2 away)







why has forum changed? took me ages to find the general ip section?????

 

[Lukey13]

Option two provides with heaps more flexibility for the future. However if you have any non-deductible debt such as a PPOR I'd be putting it towards that. Or perhaps even look at using the $60K as a deposit for a PPOR.

Otherwise stick with option two. Unless of course you'll be too tempted to dip into it to buy a plasma tv, fresh fruit and veges and petrol!

 

[MarkandTina]

If you owe less than 60k on the PPOR:
a) Set up an offset account on IP1 and put $20k in it.
b) Pay as much as possible off the PPOR with the balance.
c) If there is any left over add it to a)

If you owe more than 60k on the PPOR:
a) Set up an offset on the PPOR and put the lot in there.

This is what I would do.
You can call this the low risk strategy

 

[RumpledElf]

Do banks get a bit iffy if you put 100% of what is owing on your PPoR into an offset account?

I've been told that if you pay a home loan down to within a few $1000 of being paid off and let it sit there the bank is likely to write it off for you. And if an offset is so good because it is accessable, and the bank can just do this sort of thing, is it actually a bad idea to open a 100% offset account?

 

[MarkandTina]

I'm not sure but in our case I plan to have 20k buffer available in the IP1 offset before we pay off the PPOR, so when we get the PPOR loan down to 20k I'll be increasing the offset on the IP.

Probably not the most tax efficient way but I prefer to keep things low risk.

 

[SOULFLY3]

ok im 23 i dont have PPOR living at home with folks nice n cheap. so what do you think best strategy would be now then?

 

[RumpledElf]

Put it in your offset account if your IP loan is bigger than $60k. Really, why not if you're just going to buy another IP soon. Its that or put it in a 7.5% term deposit and pay tax on it.

My issue is a bit different - I'm quite likely to be in a position soon to have $100k more in the hand than I have owing on my PPoR so it comes down to 100% offset or pay out the loan and stick the title in my filing cabinet, since I can't see us being in a position to buy any more houses anytime soon. Seems stupid to have a 100% offset account and still be paying the mortgage every month though.

 

[stumunro]

offset is alot more flexible... Although it is possible to create a redraw against your IP2 for a deposit for IP3 later on if lending is going to tighten up your bank might not give you a great lVR for your LOC . Offset saves the interest and allows you to access the money when and as you please.

Also if you want to use money from the offset for something other than investment use, then it won't affect your deductibility by pulling it out of an offset account. If you were to put the 60k into your IP loand and redraw it out, you have effectively paid off 60k of the principal and now are borrowing it for personal use meaning you lose the deductibility.

 

[marg4000]

Seems stupid to have a 100% offset account and still be paying the mortgage every month though.

We have done this with a mortgage. We feel it gives us flexibility rather than pay it out. We simply have the monthly "mortgage payment" transferred from the offset account to the loan, so the offset account is slowly being transferred across to the loan. No fees, no interest.

Maybe not for everyone but it suits us.
Marg

 

[RumpledElf]

We simply have the monthly "mortgage payment" transferred from the offset account to the loan, so the offset account is slowly being transferred across to the loan. No fees, no interest.

Damn, that's a good idea. Why didn't I think of that?

 

[The Y-man]

..... if lending is going to tighten up your bank might not give you a great lVR for your LOC.....

Also if you want to use money from the offset for something other than investment use, then it won't affect your deductibility by pulling it out of an offset account.......

Agee on both points.

The future of access to money looks uncertain a present, and there are serious tax differences between offsets and redraws.

Cheers,

The Y-man

 

[stargazer]

Hi all

Recently i keep seeing, now and then reference from some posters on this forum and other forums that if credit is tightened LOCs may be under threat.
OFFSET accounts are better with redraw perhaps.

Some posters have made reference to the ALL MONIES clause so the bank can get to your money if they gun for you irrespective if it is a LOC or OFFSET.

It seems there is divided opinion on this.

Say i got an IP worth $400,000 owe $250,000 and a LOC 80% of $320,000. available $70,000
The $70,000 would be a buffer if things went pear shaped and try to ride the wave.

However if the bank got funny about LVRs it could threaten the whole structure. Is this set up on quick sand?

What would be the difference in benefit or threat by bank.

How would this be set up with an OFFSET OR Redraw structure to be of benefit.

Cheers
BC

 

[stumunro]

I think the worst thing that could happen in terms of offset accounts is that they take away the functionality of it, reverting back to its truer sense of a savings account.

Where as a line of credit is a credit facility which means they can ultimately close down the availability or change the conditions of the loan to you. Obviously it would remain as equity in the property but accessing it becomes more black and white, sell or keep.

 

[redlake2]

Make your new property cash flow positive

Of the 60K that you have work out how much to pay off the loan to make it cash flow positive so that the tenant + gov benefits are paying for the loan.

i.e. rental_income_per_year / current_interest_rate = Amount_required_to_make_cash_flow_positive

amount_of_loan - Amount_required_to_make_cash_flow_positive = Pay_off_this_amount

if Pay_off_this_amount is less than amount_of_gift_money then you will have a positive cash flow property and can put the rest of the money in offset or look to buy another property.

 

[stumunro]

Of the 60K that you have work out how much to pay off the loan to make it cash flow positive so that the tenant + gov benefits are paying for the loan.

i.e. rental_income_per_year / current_interest_rate = Amount_required_to_make_cash_flow_positive

amount_of_loan - Amount_required_to_make_cash_flow_positive = Pay_off_this_amount

if Pay_off_this_amount is less than amount_of_gift_money then you will have a positive cash flow property and can put the rest of the money in offset or look to buy another property.

redlake putting the necessary amount to make it cashflow positive into an offset account has the same desired effect with more flexibility with the funds.

 

[Bradsdad]

Off-set account for me. Just in case you wanted to utilise some of those funds for personal purposes one day. I appreciate it may not be on the radar but never say "never". You may wish to buy a car, engagement ring, take a holiday etc .


Regards
Steve

 

[SOULFLY3]

Thanks for the replies i think ill would put a little towards the loan maybe 10-15k and the rest into an offset account.

 

[yo yo ma]

Thanks for the replies i think ill would put a little towards the loan maybe 10-15k and the rest into an offset account.

That sounds like a good idea... You also have to consider Lenders Mortgage Insurance and may want to use a larger deposit to eliminate LMI.