Offset acc or LOC

[Elstupido]

Hi,

First time poster here and need advice from the experts.

Currently have a PPOR, bought it 585k. Worth about the same atm.

Would like to purchase first IP. Thinking to take out some equity from current PPOR.

I have 250k loan, fixed rate, mature in 2 months.

What is the best way to finance the 20% deposit+5% associated cost:
1. Take it from equity i.e. open a LOC?
2. Change the current loan to variable rate, open an offset account, start to save money through offset account to pay deposit?

Will I get 100% tax deduction for the second option?

Ta

 

[Rolf Latham]

[QUc or svr with redraw OTE=Elstupido;948407]Hi,

First time poster here and need advice from the experts.

Currently have a PPOR, bought it 585k. Worth about the same atm.

Would like to purchase first IP. Thinking to take out some equity from current PPOR.

I have 250k loan, fixed rate, mature in 2 months.

What is the best way to finance the 20% deposit+5% associated cost:
1. Take it from equity i.e. open a LOC?
2. Change the current loan to variable rate, open an offset account, start to save money through offset account to pay deposit?

Will I get 100% tax deduction for the second option?

Ta[/QUOTE]


Hiya

Welcome


Saving is prob not the ideal way to maximise gearing.you could do a limit rebalance if you had cash so that the cash can be converted to pay off urnon ded debt and then re borrow the deposit and costs

Loc or sve with redraw would work fine

U could also cross coll the new place but that's not ideal

Ta

Rolf

 

[Aaron_C]

You won't get a tax deduction for the 2nd option.

Best option is to take out the equity from your property to invest. You can do it via a LOC - but stick to a lender whose LOC is at a competitive rate, as most banks charge much higher rates for LOC.

 

[Peter_Tersteeg]

Do both.

Access your equity for investment purposes through a LOC or a specifically set up split loan (which is a little cheaper than a LOC in most cases).

Put your savings into an offset account as a means to reducing your non-deductable debt in a manner which is highly flexible for future needs. This wouldn't be used directly for purchasing an IP, but putting money into does create 'equity' in itself which can be useful.

 

[Elstupido]

Thanks aaron and rolf for the quick replies.

So, it seems that it would be better if I keep the current loan as fixed rate and pay the loan as much as I can. After I find the right IP, I'll open a LOC. In order to get 100% tax deduction on interest on the new IP?

I haven't talk to the lender yet. But, how much they would lend me on LOC under my current situation? my LVR is under 50%? Sorry for this silly question.

Just to trying to get it right since i did a really stupid thing by putting too much deposit on current PPOR.

 

[Aaron_C]

No you haven't necessarily done the wrong thing by putting a large deposit in the PPOR.
What I would do is open the offset account, put any savings into there, and get the LOC as well to invest.

As for how much they would lend you - well we don't know anything about your situation so we can't tell you. Who is your current lender?

 

[Elstupido]

Im with CBA

Will i necessarily open the Loc with the same lender? Or could I go the different lender to get a lower rate?

What is the benefit of opening an offset acc with a premium rate over a fixed rate loan without offset facility? It is said that I can't use the money to fund the deposit (can't be claimed for tax deduction). Still confused on this.

 

[Peter_Tersteeg]

Most lenders won't allow you to have an offset account attached to a fixed rate loan. Whilst there are exceptions, most of them are so restricted that you'd be better off to put the money into a good savings account.

A LOC secured against the property held with the CBA will need to also be funded by the CBA. If you want a LOC with a different lender you'll need to move your other loan to that lender as well.

CBA does have their MISA offset account. It's far from ideal but it can be made to work.

 

[Aaron_C]

Fixed rates and offset accounts don't mix. If you are concerned about fixed rates, what you can do is get the equity out from your property on a fixed rate, and use the proceeds to invest in property.

 

[Rolf Latham]

Im with CBA

Will i necessarily open the Loc with the same lender? Or could I go the different lender to get a lower rate?

What is the benefit of opening an offset acc with a premium rate over a fixed rate loan without offset facility? It is said that I can't use the money to fund the deposit (can't be claimed for tax deduction). Still confused on this.

Hiya

I think it would pay well to spend some time it your banker of nroker to cover off some of these detail qs.

The loc would need to be cba coz otherwise second mortgage

Ta

Rolf

 

[Elstupido]

Fixed rates and offset accounts don't mix. If you are concerned about fixed rates, what you can do is get the equity out from your property on a fixed rate, and use the proceeds to invest in property.

Aaron,
How can I get equity out from my ppor on fixed rate? I have no redraw at all on my current loan. It has been on fixed rate from initial purchase. My understanding is loc account should always on variable rate.

 

[Aaron_C]

Aaron,
How can I get equity out from my ppor on fixed rate? I have no redraw at all on my current loan. It has been on fixed rate from initial purchase. My understanding is loc account should always on variable rate.

You would have to get a new loan for the extra money. You can then fix this new loan at the prevailing fixed rate. It will not be a line of credit because the loan will be fully drawn from settlement. So it is slightly different but the end effect is similar.

 

[Elstupido]

You would have to get a new loan for the extra money. You can then fix this new loan at the prevailing fixed rate. It will not be a line of credit because the loan will be fully drawn from settlement. So it is slightly different but the end effect is similar.

This is new for me. I thought that someone has to pay 10% deposit before the settlement day and also for the stamp duty. That why I am thinking to open a loc.

 

[Aaron_C]

Yes that is right but there is more than one way to skin a cat.

 

[Peter_Tersteeg]

This is new for me. I thought that someone has to pay 10% deposit before the settlement day and also for the stamp duty. That why I am thinking to open a loc.

Aarons advice is correct and the advice you're received is good to.

The problem is you're thinking of a LOC as a nice big credit card which is a common mis-conception. A LOC is simply an interest only home loan with a few useful features (usually at the price of a higher interest rate).

In 90% of cases, an interest only loan will accomplish the same goal as a LOC product.

You can easily set up a fixed loan with a LOC or any other loan type beside it to access equity.

 

[birchcorp]

I agree with the above post and hope I have not caught you too late...LOC's are both overpriced and cannot and should not be used where interest is to be tax deductible (refer Domjan and the surrounding cases). Essentially there is no need to use an LOC when you have other options such as splitting loans and offsets accounts. Why pay a premium when you can have a lower cost product that has greater flexibility and will ensure you are within the boundaries of the expectations from the ATO.