IP Loan Structure

I currently have a Line of Credit on my PPOR and I am just about to purchase my first IP with an Interest Only Loan with an Offset Account attached.

I need some advice as to where I should place the more funds? In the Line of Credit Account, working against my PPOR, or the Offset Account working against my IP ?

Can anyone out there give me some tips?
I recommend putting any extra funds against the PPOR - as I'm sure 100's of others would too.

This will reduce the interest payment on your non-deductable debt, but no affect on your tax deductable interest.
I would agreed with Wobbycarly and put any extra funds against the PPR.

I would also check the loan product you have for the investment property and whether the lender offers a no fee or lower rate product without the offset account.

An offset account is typically used to reduce interest on the loan and I would much rather reduce the non deductible interest then the deductible interest. Unless of course you intended to live in the investment property in the short term and want to park some cash.
Hiya Ando

What will u do with ur PPOR on 5 or 10 years time ?


G'day Rolf,

We will probably still be in our PPOR in 5 Years but out in about 10 Years

@Albertus 6 - are you suggesting that I don't even bother with an offset account with the IP? I will not be living in the IP.

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Is the LOC the only debt you have on your PPOR? Or do you have you original loan and this LOC which you are using for deposits for IP?

If you have 2 loans, put your cash into an offset against your original loan. If you only have the LOC, then it probably doesn't matter too much where the cash goes as it's all investment debt anyway .....
Hiya Ando

When you say "OUT" of your PPOR in 10 years time, do u mean u will SELL it for sure, or would you maybe keep it as an IP ?

farmilor, I only have 1 loan on my PPOR and that is the Line Of Credit and it is the only debt on it, I am using the equity to borrow for my IP.

Rolf - I am not sure whether to rent it out and buy another PPOR or to just sell it.

Your undecideness about something so far in the futue is absolutely normal.

on that basis Id look hard at converting your LOC ppor loan to an IO loan wth 100 % offset and stick spare cash into that offset.

this structure will allow you to maximise your tax dedns on the current PPOR if ever you turn it into an investment property.

Rolf, thanks for the great advice. Would there be any disadvantage to me if I do not decide to rent it out and having an IO loan for my PPOR? (Sorry I am very new to this and I want to make the right decision from the outset)

Hiya Ando

Generally, NO, but does depend on the product and lender you have your LOC with at the moment.

Generally rates on LOC are the same or slightly higher than offset

hi ando,

Just to add to the advice Rolf has given you:

There is nothing wrong with having an IO loan on your PPOR.

If you have an Offset account against your PPOR, then you are effectively paying down the mortgage on your PPOR just as you would a P&I loan.

The difference is, you have the ability to redraw the extra repayments. :)

Of course, with all LOC's and Offset accounts - the temptation to spend 10k on a holiday every year should be ignored.