FHB PPoR>IP offset account loan?

hi there
I'm considering purchasing my first property (FHB) with my partner. We have a good 20% deposit (excluding the grant) and are looking at townhouses or units/apartments in the low $400's. We plan on living in this place as a PPoR for a couple of years before renting it out & buying a new PPoR but just have a question regarding the deposit:

I wish to make as much in extra repayments over the next 2yrs into my home loan, then when it comes to buying again, I want to pull out this extra repayment cash from my first place to use as a DEPOSIT for the 2nd place.

>>Is it true that by doing this, if you only have a "redraw" account (not an "Offset acct"), then you are financially disadvantaged? (i.e. for tax purposes, now that the first place is an IP)

I was leaning towards a Bankwest rate-tracker, or probably an ING 5.03% - both of which are only "Redraw" loans though... Should I be looking elsewhere for an offset functionality (and hence be forking out an extra $350/yr in fees)??

^AND any recommendations would be much appreciated! (I see that my 2 bank options don't currently have offset options?!)
 
Yes your statement about redraw is totally correct.

Why wouldnt you take a 90% lvr or higher and deposit the balance into a 100% offset account from day 1.

Current rate with free offset around 5.04% so not much difference even if you do have $375 / year in fees.

When you purchase the 2nd and 3rd and 4th property there is no application / valuation fee so would make it up quiet easily several times over.
 
Why wouldnt you take a 90% lvr or higher and deposit the balance into a 100% offset account from day 1.

^^Because I want to avoid paying LMI... perhaps not a huge cost in the long run, but still something i was aiming to avoid forking out for! 20% deposit gets rid of LMI...


Current rate with free offset around 5.04% so not much difference even if you do have $375 / year in fees.
When you purchase the 2nd and 3rd and 4th property there is no application / valuation fee so would make it up quiet easily several times over.

^^ Do you mean current rate with "free offset around 5.04%" to be one of the "redraw only" accounts like ING or BankWest? and then you're comparing those to a typical "offset" account (eg CBA wealth package) which has a fee of $350/yr?
I suppose you make a good point in that when it comes to buying property #2, as long as I go with the same bank/loan type, I'd be getting "free" account keeping fees...

Thanks for the confirmation though Qlds007
 
Hiya

What RT says makes good sense.

What I recommend is that you look beyond the immediate NOW, and do an assessment of what may be .....you will find those investments in LMI and a decent loan product pay back in multitudes ( usually)

ta
rolf
 
ahhh, of course - it only just dawned on me the advantage of doing 10% deposit and then put the other 10% straight into offset account. getting hit with the ~$1500-$2000 LMI should more than pay for itself by me having access to an extra ~$40k when the time comes to buy place #2! Thanks guys

one question though - can/do banks offer a reduced LMI amount if you show that you can/will pay 20%+ upon buying a house, but you choose to do it in two halves as per the above scenario? Or am I asking too much to be able to still get out of LMI but get the advantage of having access to this extra dosh??

Any suggestions on which bank(s) have the best offset-account deal going around?
 
what about this same scenario, but longer term? e.g. have the PPOR loan with redraw for 5-10 years, dump all your money into it, before redrawing all extra repayments to use as deposit for another PPOR, and converting to IP (hopefully changing loan to IO)?

does it only matter for tax purposes what loan you have once you commence the property as an IP?
 
what about this same scenario, bout longer term? e.g. have the PPOR loan with redraw for 5-10 years, dump all your money into it, before redrawing all extra repayments to use as deposit for another PPOR, and converting to IP (hopefully changing loan to IO)?

does it only matter for tax purposes what loan you have once you commence the property as an IP?

It doesn't work like that because the interest on the money you redraw is no longer tax deductible. Unless you draw it to spend on another income producing investment.
 
Hiya

the simple way to work this one out is the "purpose test"

whats the use of the money, what are we purchasing with it NOW ? if its investment, then deductible, if PPOR or doodad then no deduction.

This "little" one is the most overlooked malpractice item on behalf of most bank managers, most brokers, accountants and well meaning relatives. Pay your loan off as fast as you can..........................the kill debt mantra

Very rarely do people ask the future use of property questiion, when in reality its probably got more financial impact on a client than a few pts on rate ever will

ta
rolf
 
This "little" one is the most overlooked malpractice item on behalf of most bank managers, most brokers, accountants and well meaning relatives. Pay your loan off as fast as you can..........................the kill debt mantra


Thanks Rolf - I've found that only about 50% of the half-dozen broker's i've dealt with recently have actually said that the "redraw only" account would be fine in my circumstance... as I was not too sure of how it all worked at the time I didnt bother questioning that, but it seems to me that the brokers could use some extra training into tax sides of things...
I suppose most of their clients must be first time buyers and hence not looking too often to invest, which is why this question doesn't get asked of them very often?


can anyone out there recommend me a loan which has an offset account? I don't need all the "free extras" like 2 credit cards, free ATM withdrawals etc. I basically want the same as what the ING Mortgage Simplifier, but with an offset functionality... but it doesn't look like that exists!?!
 
I was leaning towards a Bankwest rate-tracker, or probably an ING 5.03% - both of which are only "Redraw" loans though... Should I be looking elsewhere for an offset functionality (and hence be forking out an extra $350/yr in fees)??

No offset account on ING, but the Rate Tracker Ultra does have an offset account available for $15 per month. This might sound steep, but compare it to $360+ for most pro-packs...
 
the rate tracker is only 3 years then it reverts to lite variable, which has no offset?

ive been looking at IO ppor with offset loan (now my eyes are opened about tax deductibility of redraw), ruled out commbank due to MISA account sounding like a pain, stg offset reduces loan length rather than interest payments on ppor loans, and of the other banks, ANZ looks better than wespac. not sure yet if a non-bank loan would be ok (would be more attractive if any had visa debit options as need visa for online stuff) given frequency of transferring back and forth between offset and credit card account (wherever that is)
 
The rate tracker does need to be reviewed after 3 years, you'd never go for the lite home loan. Fortunately there's no defered establishment fee on BankWest loans.

Out of the big banks, only ANZ & Westpac have decent offset products. On balance I'd say Westpac is slightly better on rate pricing, but higher on the annual fee. I'd say in most cases Westpac actually works better and is cheaper, but there are exceptions of course.
 
PeterC;578467[QUOTE said:
]the rate tracker is only 3 years then it reverts to lite variable, which has no offset?

correct but no DEF to refinance later on.


ive been looking at IO ppor with offset loan (now my eyes are opened about tax deductibility of redraw), ruled out commbank due to MISA account sounding like a pain, stg offset reduces loan length rather than interest payments on ppor loans, and of the other banks, ANZ looks better than wespac. not sure yet if a non-bank loan would be ok (would be more attractive if any had visa debit options as need visa for online stuff) given frequency of transferring back and forth between offset and credit card account (wherever that is)
[/QUOTE]

The MISA can be a pain depending on how you want to use it. I agree that ANZ's looks better on the surface but they will only lend 90% (won't cap LMI) which could be restrictive depending on your future objectives. In saying this who knows what LVRs will be available in 6-12 months time with different lenders. All we can do is look at what's available now.


Regards
Steve
 
ruled out commbank due to MISA account sounding like a pain
I wouldn't rule it out for just this reason, if it stacks up in other areas.
I have been using MISA for a few years now and dont find it to be a problem at all. With internet banking it is very easy to use and I would think it unlikely that most people would need it to be fully transactional anyway.

Just my 2c

Nadia
 
Comm has pros and cons but the offset does sit (for me) more on the con side as most people need to keep a float in the streamline - its lots of balls up in the air...

One thing to watch as well Barry and Peter and the other ING people - is that ING is increasing its smartpack fee to $699
 
Comm has pros and cons but the offset does sit (for me) more on the con side as most people need to keep a float in the streamline - its lots of balls up in the air...

One thing to watch as well Barry and Peter and the other ING people - is that ING is increasing its smartpack fee to $699

Thanks Spectre, although I think I'm going to have to rule out all non-Offset loan types, which scrubs out ING all together. Ideally I'd want that same ING deal with an extra offset functionality at $15/month or so. (which is like BankWest, but with a permanent setup, not just for 3yrs!!)
 
Hiya

the simple way to work this one out is the "purpose test"

whats the use of the money, what are we purchasing with it NOW ? if its investment, then deductible, if PPOR or doodad then no deduction.

This "little" one is the most overlooked malpractice item on behalf of most bank managers, most brokers, accountants and well meaning relatives. Pay your loan off as fast as you can..........................the kill debt mantra

Very rarely do people ask the future use of property questiion, when in reality its probably got more financial impact on a client than a few pts on rate ever will

ta
rolf

That's what my situation is. I bought our PPOR half a year ago, with a loan without the offset account. At that time, I told my broker that the PPOR I bought will become IP after one or two years, but he did not advise me that I should use a loan with an offset account. Few months later, I just found out that I got the wrong loan in because I do have some spare money now, but I cannot put it into my current loan since I will not get any tax benefit once I redraw it later to purchase another PPOR; that is, the money I redraw will not be deductible if I put current PPOR to IP after I purchase another PPOR. Now I am thinking is there any way to modify it? My thinking is below:
The original loan for current PPOR: $360k(CBA economy, interest only for first 3 yrs), I repay $15k already, make it (loan amount)$345k at moment. If I refiance it to a new loan with offset account; say, $500k, that means, I can put $155k ($500k-345k) into the offset account, so I still borrow $345 (of course, I can put more extra money into the offset account, like my wages & savings...etc) But my question is: one year later, if I buy another PPOR and put the first PPOR into IP. The $155k (or more) I take from offset account will be put for the purchase of new PPOR. In this case, how much interest is deductible? the interest of $500k or only the interest of $345k (the amounts of loan when I refiance)?

Any advice? Should I refiance now or just wait until the time when I want to purchase the new PPOR? (If I refiance now, I may put all my wages & saving to the offset account for the new loan, but as I know, the interest rate of loan with offset account is usually higher; for example, the interest rate for my current one is 5.06%, but for Westpac offset account, I saw it's 5.81%?)

Another thing is that I heard from my friend that for the four big banks, only Westpac has the "real" offset account, others are actually "redraw" facilities, is it true? I saw you all mentioned others like ANZ, BW..etc.

Thank you very much in advance for replying.
 
Hiya

perhaps the easiest thing for you could be to do a product swap into the CBA SVR product IO and use the Misa offset. rate would be in the region of 5.14 or 5.24 .

WBC ANZ and NAB offset are all ok too. Expect to pay from 4.90 or so for the BW one, to say 5.11 for the WBC one

ta

rolf
 
Hiya

perhaps the easiest thing for you could be to do a product swap into the CBA SVR product IO and use the Misa offset. rate would be in the region of 5.14 or 5.24 .

WBC ANZ and NAB offset are all ok too. Expect to pay from 4.90 or so for the BW one, to say 5.11 for the WBC one

ta

rolf

Many thanks, I will have a look those products first.
Still hope that someone can tell me how much interest I can claim for the IP, interest of the whole $500k or just interest of the $345k?
 
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