Can I structure my accounts better?

[Orchard Grove]

Hi all,

Been speaking with my accountant and it seems my understanding of capitalising interest is not going to work, so can anyone make some suggestions as to how I can offset my PPOR debt as quickly as possible from the below scenario?

Mortgage 1 (PPOR) $175,000 - currently putting in fortnightly payments from salaries above minimum payment required.
Offset account: $95,000

Mortgage 2 (IP1) $200,000 - interest payment fixed at $1,160 per month

Mortgage 3 (IP2) $353,000 - interest payment fixed at $2,260 per month
LOC - $100,000 and $80,000 used for IP2 so deductible interest, $20,000 available.


Property A/C - salary deposited to pay interest on LOC / IP1 / IP2

Everyday A/C - Rent and remaining salary

Any excess in Property A/C or Everyday A/C is transferred to Offset account or paying credit card.

My plan is to get the Offset account equal to the loan balance on the PPOR so that all future payments can come straight from Offset and then no salary funds need to be deposited in the future (freeing up servicibility and removing non-deductible interest).

How would you structure the interest payments so that the salaries can go into the offset and not used on the interest for IP/LOC. eg. Capitalise Interest using the $20k LOC?

Would doing this actually have a benefit, wouldn't the extra going on the LOC cancel out the extra you are putting in the Offset... am I missing something?

Any ideas on how to re-structure things?

Thanks
OG

 

[Rolf Latham]

Hiya OG

credit the offset account with the rents and the salaries, take the interest fro investment loans from the LOC.

Extend LOC when if you have equtiy and capacity.

make sure you dont spend the money that should be piling up in the offset

Use a predictive budget

ta
rolf

 

[s050399b]

Regarding putting the rent in the offset account of the PPOR, don't we need to have a clear-cut way of seperating tax deductible and non-tax deductible monies?

 

[Rolf Latham]

Hiya

An offset acccount isnt debt though.

If all you are doing is pushing cashflow through this account, one does not need to separate deductible vs non ded.

There are however some loan structures where it is required to keep cashflow of all sorts out of them, so the caveat is that you need to look at each scenario on its own merits !

ta
rolf

 

[s050399b]

Opps, I forgot to mention; if I were to use equity from PPOR as deposit to purchase IP1, would it cause any problems like you have suggested?

 

[Rolf Latham]

depends on how you have used the equity ?

LOC ?

Offset ?

Crossed Loan ?

ta
rolf

 

[s050399b]

I am about to use it to purchase my 1st IP, probably crossed loan.......Which is better for longer term in the future?

The current PPOR loan is a variable P+I loan.




A bit confused after reading LOE and stuffs......

 

[Orchard Grove]

Thanks for your response Rolf, that was kind of the track I was leaning towards.

My accountant was wondering where the benefit was though, isn't the extra that is going in the offset being matched by the increase in the LOC. So sure your PPOR is offset but then you have a much higher balance on the LOC.

Is the benefit that the interest on the LOC is deductible so it doesn't matter how high the balance is?