LOC versus IO/Offset

Operationally the above two strategies seem to achieve the same result. But from my other posts recently it would seem there is a big difference in how each strategy might be treated from a taxation point of view.

In that situation, having an IO loan linked to an offset account seems to be favorable, because, unlike a LOC, you are never "drawing back" out of the loan.


From my observations, it seems lenders will happily give you a LOC against your PPOR for any worthwhile purpose (including non-deductible purposes like new car, boat etc), whilst I haven't heard of lenders offering an IO loan with offset facility even though it achieves the same purpose.

Is this because the usual LOC loan starts out with a $0 balance whilst an IO loan starts out as $X and the offset at $0 balance?
 
Hello,

I have to admit I'm a little confused by what you're getting at.

There are lenders who offer an offset account attached to an I/O loan. I think ANZ is one, but our resident mortgage brokers (Rolf & Richard) would know better than me about that.

Cheers

John
 
HI KM

AS in one of my earlier posts you will find that the lenders will probably have to scurry to ask if "we do that" because many of them are clueless as to the primary selling points of their own, let alone someone elses products.

ANZ, Westpac, and Bankwest are 3 of a few that will do I/o with offset.

BUT your point is a valid one since Bankwest for example will NOT do it for Non Investment debt, and many mortgage insurers will not allow I/O for loans > than 80 %.

But then everything comes down to how you frame the appln.

ta

Rolf
 
Hi All,

We are selling our PPOR and would like to put the proceeds into an offset account against an interest only loan for an IP.

The National Bank have said that" THEY DON'T DO THIS SORT OF ARRANGEMENT AS THERE IS NOT ENOUGH DEMAND FOR IT"

What they have in mind is that I pay interest only on half the loan $14K) and then principle and interest on the other half, but since there is no interest, then the whole $18K will go towards the principle.

My ideal strategy would be that the money in the offset actually offsets half the loan, therefore only $14K interest would be payable.
This would be perfect.

I do not want to put one cent in towards principle, (why would I want to put in another 18K).I definitely need this arrangement to be an offset account, for if I put the money straight into the loan, and I redraw for a PPOR then I lose 50% tax deductiblity on the IP.

What would be the best way around this? Is there another arrangement I could make with the bank.?

Thanks
Marina.
 
HI ML

Of the majors both ANZ (yeah I know everyone's favourite,not) and Westpac both offer I/O loans with offset acct.

Probably for your use I would recommend the ANZ one since it has an I/O term of up to 10 years.

You may also depedning on the loan value and package used be better off to use a split loan acct.

The fact that one of Australia's largets banks does not recognize the need to preserve tax deductability in their prouct base is a worry.

It is not even commonly know strategy amonts financial adviser and accts.

Have fun Marina

Ta

rolf
 
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