Investment for baby: Offset vs Index fund

[Terry_w]

Thanks for that Terry

So if you borrow money from the LOC
say $1k for ease of numbers
to put into an index fund

would you have with dividends reinvested?

otherwise how to pay holding costs of LOC? aside from after tax salary

confused with tax implications

is using dividends to pay interest bill same as paying with own after tax salary?

If you borrowed $1000 there would be about $60 interest pa.
You would pay that with your after tax money.
So each year the LOC would be increasing, or each month.

But at the same time the loan on your home loan or offset account would result in $60 less interest.

Overall the same interest incurred, but the tax deductions have just increased by $60 and you may save $20 per year in tax.

On these numbers it may be too much hassle for the savings involved, but if you alread had it set up then why not use it.

 

[antonio]

If you borrowed $1000 there would be about $60 interest pa.
You would pay that with your after tax money.
So each year the LOC would be increasing, or each month.

But at the same time the loan on your home loan or offset account would result in $60 less interest.

Overall the same interest incurred, but the tax deductions have just increased by $60 and you may save $20 per year in tax

Thanks Terry

We have an offset at IR of 4.88%
and an LOC at 5.08%

diff of 0.3%

Just last night my wife asked me why dont we pay off the LOC?

I, hopefully correctly, told her that better to have money in offset for money when we need it even though we're paying an extra 0.3% in interest...

hopefully that's a wise call

 

[Terry_w]

Thanks Terry

We have an offset at IR of 4.88%
and an LOC at 5.08%

diff of 0.3%

Just last night my wife asked me why dont we pay off the LOC?

I, hopefully correctly, told her that better to have money in offset for money when we need it even though we're paying an extra 0.3% in interest...

hopefully that's a wise call

0.3% is a bit of a difference. Your understanding is correct, but why no ask your bank to give a discount on the LOC.

If the balance is fairly high you can also convert it to a standard IO loan.

 

[ok180]

Im grappling with this myself at the moment. Family members have given us money to set up an account for our 3 month old as gifts but i dont really believe in it. Im pretty much of the mindset that nhg posted from the millionair next door.