Mortgage Offset account

[propertynwbie]

I had some questions in relation to restructuring home and investment loans.

My current scenario:

PPOR loan : $173k (P&I) ; $54 (seperate equity only loan; IO only)
Investment loan : $350k (IO)

Basically our plan in next 2-3 years is to move into investment property as PPOR. For that reason, i want to make my cashflow more efficient by utilizing facility of 100% mortgage offset account with Bankwest.

Eventually, in next 2-3 years, we are hoping to have total savings of $100k which i would like to pay off $350k loan(investment loan). That leaves with $250k loan (which eventually would be PPOR) and two other loans at current PPOR property $173K and $54k (this would then be our investment property).

So here is my plan. I would convert P*I loan ($173K) into Interest only.

What do you think about this restructuring? Are there any issues you foresee with this kind of plan?

Thanks very much.

 

[Bradsdad]

sounds like a good idea (the IO part). I assume the LOC was used for the current IP so once it becomes your PPOR you will lose the detectability.

You mention paying down the (to be) PPOR. Why bother if you have the offset facility? The real cost to you (interest) is the same. What if down the track you decide to turn it into an IP again. By having funds in the offset this possibility isn't affected.

Regards
Steve

 

[propertynwbie]

Hi Steve,

Thanks for your reply. I havent opted for 100% offset account (for current IP) right now but am thinking since it would help me manage cashflow efficiently. BTW, current IP is going to settle next week so still accounts are being setup and so forth.

I assume the LOC was used for the current IP so once it becomes your PPOR you will lose the detectability.

Yeah thats right. I would be using total amount gathered in offset to pay off current IO property. Do you see any potential issues in doing so?

I just want make sure that in terms of tax at later stage, there are no issues. Hence i am going to meet with one of the tax account specialist next week.

Thanks.

 

[propertynwbie]

Can someone please advise??

 

[MFG]

Hi propertynwbie,

if i am in your position, i would
save up the 100k as plan in the current PPOR offset acc.

when you decide to move into the IP and then convert your current PPOR into IP, I would
1.pay off the LOC fully with the 100k available. As Steve mentioned earlier, this LOC will no longer be tax deductable and it should have an i/r higher than regular home loan. killing the debt with highest i/r. also, if you have car loan, finish it off first.
2.With the remaining money, get an offset setup for the then PPOR and put this amount into that offset account.
3.now that you have a "reset" LOC on your IP. I would use the new LOC to service the IP's interest and use it for all IP interest related expenses.
4. divert all income earned into new PPOR's offset.

this may not be the best advise but is just an option.

PS: not all tax account specialist are IP focus just like people here in the forum.

cheers

 

[Terryw]

I would do it similar to Scott, but seek advice on doing this:

Set up a second LOC now. Use this LOC to pay for all expenses associated with the current PPOR. Seek advice on paying the interest for this PPOR loan with the second LOC.

Put all freed up cash into the 100% offset account.

Later when you move out all the money in the LOC2 will have been borrowed for the former PPOR and the interest on this LOC could be deductible.

While you have been doing this the balance in your offset account should have risen much higher and this can be used to pay off LOC1 and the rest into a 100% offset account on the new PPOR.

 

[Mick C]

The above structure by terry would work...it's a bit complex and involves a lot more planning and control.

propertynwbie if your after a more simple approach; what you have suggested is jsut fine...no issues that i can see- you even have your PPOR and equity release loan separate; and the equity is I/O which is awesome! sounds like you done this before and know what your doing.

The only little change i would add is to have an offset account for both your PPOR and IP ( yes technically speaking you may not need a offset for the IP) but if your going with one lender only...having an offset for both loan would not cost you anymore in fees etc ( package).

So instead of chucking all your cash into the IP ( which will become a PPOR ) leave the money in the offset account and keep both loans as I/O is fine, as any extra "principle" would go into the PPOR 100% offset account anyway.

In affect you achieve exactly the same end result in terms of tax and interest payment; only diff is you have $$ cash in your offset to use if required in the future OR if you decide to swap your PPOR down the track.

Regards
Michael

 

[propertynwbie]

Thanks very much for all your assistance.

Michael,

Both loans are with seperate lenders (PPOR and equity: CommBank) and Investment: Bankwest). I can opt for 100% offset with Bankwest however with Commbank,offset is not available with current loan. Hence i wanted to have offset linked with investment loan.

Do you guys see any potential tax problems in doing so? As i mentioned previously, i would be using amount in offset (probably $100k after 2-3 years) to pay off the then PPOR (Bankwest investment loan:$349k) so eventually structure would be something like this.During this 2-3 years, i wont be paying anything for $173k and $54k loan:

PPOR: $250k ($350k-$100k)
Investment: $173k + $54k

Any thoughts greatly appreciated.

 

[Mick C]

Hi,

CBA's offset is called the Misa account and it's really annoying because you need to transfer the funds from a separate saving account. You can request for a product change to the wealth package ~$350 PA; but i would suggest you stay with ONE lender given the loan amount is so low, the annual fee would eat up a lot of your benefit; Bankwest on the another hand as a 100% offset and they charge something like $3.99 per month/ per offset.

Your structure is fine, at no point are your funds contaminated ..since everything is separated and the funds are drawn down from the offset.

Regards
Michael

 

[propertynwbie]

Thanks for your reply.

Yeah i think i am better off to leave CBA in getting mortgage offset due to reasons mentioned below. Also wealth package is not going to suit as i think it would benefit only if there is substaintial mortgage.

Bankwest charges $15 per month for 100% offset account.

I was thinking to refinance with either UBank or Loans.com.au as I have 20% equity in current PPOR and their rates are really attractive (6.59%). Can anyone tell their experience/feedback with Ubank or Loans.com.au?