Rixter
What is the advantage of using an offset instead of a LOC please?
Thanks
1/ Lower interest rates
2/ Ability to fix
3/ Tax structuring advantages
4/ Lower risk assessment to banks/lenders
Hope this helps.
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Rixter
What is the advantage of using an offset instead of a LOC please?
Thanks
If you pay the LOC from the offset that is offsetting your PPOR you are losing the whole benifit of minimising personal debt?
MJK
1/ Lower interest rates
2/ Ability to fix
3/ Tax structuring advantages
4/ Lower risk assessment to banks/lenders
Hope this helps.
Rixter
You can do 1 and 2 with a LOC if you have the right package.
Can you expand on 3 and 4 please?
Thanks
Can you tell me which lender/s for 1 & 2.
But let's say the annual interest bill is $20K
I borrow that amount from LOC2
LOC2 now goes up by $20K
The interest on LOC2 now costs me $1.8Kpa and I pay that $1.8Kfrom my offset. I still have capitalising of expenses but I don't pay interest on interest.
How does an argument with the ATO sound?
The above is risky enough strategy for me and some accountants even say that to have 100% peace of mind you should deposit the rent into LOC2.
My 2c
It's the STGeorge portfolio but you are right
looking at the rates the interest is 0.1% higher than standard variable.
Thanks
Do they allow you to fix a LOC rate tho?
With deductability based on the 'purpose' of the borrowings. Can the 'purpose' be classed as investment purposes when the money is deposited in an off-set account?
Thanks
I my opinion,
Thats why the money that goes into the offset must be rent/salary/dividend income rather than borrowed.
Borrowed money must be used to pay business related expenses as I see it.
Thants what I thought, but there are people here stating that they use off-sets for drawndown loans to pay for IP Expenses.
Thanks
Cramer
The set-up you describe in the first paragraph is perfectly legitimate. The reason that your accountant is suggesting an offset a/c (rather than the LOC) is that the money deposited in the offset a/c will save you interest on your PPOR loan, whereas money deposited in the LOC won't and the interest on the LOC used for personal expenses is also not deductible. What your accountant has suggested will result in your PPOR debt being paid off sooner - and the resultant increase in equity will be available sooner for further property or other investments.
Not all lenders offer full 100% offset accounts and some only offer these offset accounts with certain loan accounts. Before going down this path, check out - very thoroughly - any costs involved in changing loans and/or lenders to ensure that this approach is cost-effective for your particular situation.
Cheers
LynnH
Sure, that clarifies what you said. I don't see how it makes any difference though - they are both non-deductible debt so the interest and tax bill works out the same overall? What's the point of opening another account (an offset) in this case?