Line of credit vs Top up split with offset
- Thread starter Noodle
- Start date
Yes, the main danger is mixing borrowed and non-borrowed funds.
Oh OK I would do whatever it takes to avoid this situation. That's why I want separate loans with separate offsets.
Having said that LOC looks tempting becuase it just looks so flexible to use. But I am put off by the repayment on demand clause. I had a look at the Portfolio Loan T&C from St George and it said:
Variable rate sub-accounts
We may demand that you repay the whole or
part of the sub-account total amount owing at
any time unless the interest rate under the subaccount
is a fixed rate. You must repay in full the
amount we demand at the time we specify in the
demand.
You acknowledge that there is no agreement,
arrangement or understanding between you and
us that we may demand repayment only when
a particular event occurs or does not occur.
I have asked several bank BDMs if they know of this clause ever being imposed?
Some don't even realise it is there or even heard of it and all have said they have never heard of the "repayable on demand" clause being imposed.
A "perfect storm" of financial pressures would be the likely testing ground for the "repayable on demand" clause kicking into gear.
Yes, and there was a thread on here a few months back where a bank closed down someone's unused LOC.
the prime difference between offset and LOC/redraw is this
In offset, your money stays your money
If you place your money into an LOC or a redraw it becomes the banks money, and the T&Cs of that loan contract apply.
Its that simple
ta
rolf
In offset, your money stays your money
If you place your money into an LOC or a redraw it becomes the banks money, and the T&Cs of that loan contract apply.
Its that simple
ta
rolf
Hi All,
I have been advised by most brokers either way LOC/Offset
We currently own our PPOR (430K)
1 BROKER SUGGESTS TO USE THE FULL EQUITY 344k and use part as the deposit for investment loan and the other in an offset account
2nd Broker suggests to do the same but using LOC with rates .4% more and $395 annual fee compared to no fees and only $9 a month for the offset....
Will the offset be split or linked between ppor and ip and is this easy to work out when rent goes to offset and ezpenses go out for tax purposes?
Thanks
I have been advised by most brokers either way LOC/Offset
We currently own our PPOR (430K)
1 BROKER SUGGESTS TO USE THE FULL EQUITY 344k and use part as the deposit for investment loan and the other in an offset account
2nd Broker suggests to do the same but using LOC with rates .4% more and $395 annual fee compared to no fees and only $9 a month for the offset....
Will the offset be split or linked between ppor and ip and is this easy to work out when rent goes to offset and ezpenses go out for tax purposes?
Thanks
So your PPOR is unencumbered?
'using the equity' is a vague concept - sounds like he might be suggesting cross collateralising the loan by borrowing 103% of the purchase price of the investment and using both properties as security. Not a good idea.
Using a LOC on the PPOR and then borrowing the 20% deposit from this loan with the remaining 80% secured on the IP is the way to go.
One offset on the IP loan is all that is needed. No need to put wages and rents into different accounts as this will have no effect.
Isnt money in an offset account derived from borrowed funds now considered as savings not borrowed funds therefore technically not tax deductable if used for investment purposes from ATOs perspective?
Also been lead to believe the bank can still access your offset account if they chiose to because you have violated the loan t&c?
Money in a LOC or redraw is still considered borrowed funds so from an unexpected ATO audit you would be better off?
Go to 80% on your PPOR and use a portion for deposit + costs for an IP and borrow the remainder secured against the IP. The reamining funds can be used for future IP purchases serviceability permitting. Make sure you set up a seperate loan split if you intend to use some of these funds for personal use to avoid contamination.
$9/month for an offset account. Sounds like Bankwest?
Have just done this myself but is it necessary if offset is now considered savings?
I still would keep it seperate incase you get audited as this will definitley contaminate the borrowings. Mixing investment and personal funds even if in an offset will only make it messier.
Yes it is
Is it best to start with an 80% LVR or 90% for your first IP?
I can do 90% and still get under 4.4% obviously with LMI attached
Otherwise 80%LVR will be around 4.34%
Depends on your risk profile and funds available for either a buffer or your next purchase so really needs to be answered in line with your short, medium and longer term goals?
I aim to set clients up on an 88% + lmi so the deal stays under 90% and the lmi premium is exponentially lower in comparison to a 90% + lmi deal.
So in short, yes it can be a good strategy.
Got it!
OK, Think i have the structure set now...
AMP LOAN
Using 80%/90%? equity from PPOR
(H) PPOR - refinance
(SPLIT LOANS)
(L1) Deposit from PPOR using equity for IP1
(L2) Loan for IP1
(L3) Deposit from PPOR equity for IP2
(L4) Loan for IP2
etc etc
This will keep the deposit loan and IP as one so to speak to know how each IP is performing and not be linked with PPOR. Rent will go back onto IP loan and will be having the loans set up as P&I to gain equity back within the IP.
Can also setup savings for each IP Loan for expenses and possible rent to go into but this could be too many accounts covering each IP
Thoughts?
Thanks
OK, Think i have the structure set now...
AMP LOAN
Using 80%/90%? equity from PPOR
(H) PPOR - refinance
(SPLIT LOANS)
(L1) Deposit from PPOR using equity for IP1
(L2) Loan for IP1
(L3) Deposit from PPOR equity for IP2
(L4) Loan for IP2
etc etc
This will keep the deposit loan and IP as one so to speak to know how each IP is performing and not be linked with PPOR. Rent will go back onto IP loan and will be having the loans set up as P&I to gain equity back within the IP.
Can also setup savings for each IP Loan for expenses and possible rent to go into but this could be too many accounts covering each IP
Thoughts?
Thanks
Not sure I understand what you are doing, but it doesn't sound good.
Is all your non deductible debt paid off?
I am still not sure what you are doing.
Sounds like you may be just splitting the loan. In that case as long as you use the redraw money properly - ie paying straight to the expense with no detours - then you will probably be ok. No need for an offset here, but you would want to have one on your non deductible debt.
