voodoo said:
...and yes I am on a higher Interest rate for LOC and I am spending most of my money on personal expenditure and tap into the LOC occasionally for investment expenses.
We are on a budget and are fairly good with our money.
It will simplify working out your tax deductibility of debt if you keep deductible and non-deductible expenditure. This will save you money if you use an accountant or time if you do it yourself. You just need to look at the seperate statements.
voodoo said:
If both loans are IO then how do we pay off the PPOR (loan 2)? and because I am virtually level pegging each month with my income and expenditure wouldnt my off set account be empty?
I currently have a LOC limit for 128k and at the moment I have used 110k so would I pull out the remaining 18k and put in an off set account or how does this work? who would be the best to talk to about this.
The money that will normally go into Loan 2 (your PPOR) will sit in the Offset Account instead. If you decide to pay off your home, you do so when the balance in the Offset Account matches the loan amount. You can then either close this loan completely or leave it sitting there for redraw when other investments come up and it will be fully deductible or keep it available for personal expenditure where it won't be deductible. It is always good to have funds available.
The second every dollar you earn hits your Offset Account, it will start reducing your interest expense. You will benefit from an interest rate reduction and the balance should be increasing due to no principal being paid into the loan. Remember,
EVERY CENT must be deposited into the Offset Account including rental income. You pay the interest on your interest only investment loan via direct debit from the Offset Account as well so it helps you reduce your interest expense while the funds sit idol.
Ideally, whatever your new loan limits would be under this new structure, you would withdraw all the funds and park them in the Offset Account as you suggested. You may also like to increase your borrowings to around 60% LVR just to ensure you have enough money to get through the tougher times you are facing and some additional funds in case a good positive investment opportunity arises to improve your cashflow situation further.
This paragraph is Financial Planner stuff but you might even look at a nice Property Trust (deferred taxation) that pays regular dividends at levels higher than the cost of the interest. It would both increase your tax deductions and your cash flow. It is also considered relatively low risk.
It may sound complicated and daunting if you are not familiar with the structure I am describing but I can assure you that it is simple to set up and very low maintenance once it is setup. It is also cheaper than running with LOCs.
I am happy to assist you with this through the forum, my websitel or by email (details below) if you prefer privacy but I do not submit loans for anyone anymore. All I do is discuss and advise as to the various structures, products and rates available to those needing the information. If you need a good broker, I do refer to other brokers who do not charge any fees and work with them to try and sort the best deal for those who ask for my help. I do get part of the brokers commission if I provide a referral but it still costs you nothing. The lender pays the broker's commission.
There are also many brokers here as Rolf pointed out (himself included) who are more than qualified to help you get the best deal. If you want some help, just ask and there will be no shortage of those willing to help you!!!
