Offset account question

Hi, I'm trying to work out if one of the following options is better than the other.

Here is the scenario:
Buy a 200k Property
Have a total of 50k to put down as a deposit.
Loan term: say 25 years
Interest rate: 6%
Monthly repayments

Option a)
Loan of 150k and deposit of 50k

Options b)
Loan of 170k, deposit of 30k and then place 20k in the 100% offset account

Is there any interest savings with one option over the other...

I tried working it out in a spreadsheet, but am not 100% sure.

Thanks.
 
From my experience I would say get a loan for as much as you can and then put the rest in the offset account. Pay as little on the loan as possible (interest only repayments) and then pay off the loan into the offset account to reduce incurred interest charges, and if u ever go to redraw from the offset account the funds remain tax deductable.
 
If you paid more into Your loan say if you were fixed and once the term was up you refiananced what would the difference be for tax purposes?
As opposed to saving $ up
 
If you paid the loan down, then refinanced to buy another, you don't actually get the cash back, you borrow it back with interest.

The benefit of the offset account is that the money remains yours to do as you please while still reducing your interest payments.

With all loans, you want to minimise your non-tax deductible repayments.

If for example, you wanted to buy a new PPOR, and keep your existing house as an IP, you can move the balance of the offset account to offset the new, non-deductible loan. The repayments on the loan for the old house revert back to the full loan amount, which is deductible.
 
thanks for the quick replies.

I just have one more question regarding an offset account - if you hve $ in an offset account do you still pay the same amount each month (and the extra goes towards paying off the principle) or your monthly payment reduce ?
 
from my understanding, you will pay each month as the interest is charged on the amount of loan - offset, ie only the difference. The principle isn't worked down in an IO loan.
 
I just have one more question regarding an offset account - if you have $ in an offset account do you still pay the same amount each month (and the extra goes towards paying off the principle) or your monthly payment reduce ?

The only difference short-term will be the extra $15-$30/month in fees that you're forking out to have the functionality of an offset account. Negligible amount in the end, considering that you could be benefiting >100x of this amount in the long run if you do decide to invest in that first property!
 
Hiya

Be aware that NOT all IO 100 % offsets operate the right way, that being to reduce the amount of interest charged.

Some like STG on PPOR, and Homeside(?) , reduce the IO balance, which isnt waht you want.

ta
rolf
 
Hiya

Be aware that NOT all IO 100 % offsets operate the right way, that being to reduce the amount of interest charged.

Some like STG on PPOR, and Homeside(?) , reduce the IO balance, which isnt waht you want.

ta
rolf

Rolf can you explain more clearly what you mean? perhaps an example would help me understand...
 
Hiya Barry

Assume you have a 100 k loan, and 100 k in the offset

Most lenders, the Interest oonly payment will be based on the difference, meaning 100 k - 100 k = zero.

Some lenders FORCE the same regular repayment, and credit the offset savong to the home loan instead. so say at 6 % youd be paying 500 a month, since the interest is zero, the principal reduces by 500

ta
rolf
 
.

I just found this out on my first payment with St George Advantage package with the 100% Offset account. Not happy! I suppose its my fault for assuming it would work Interest Only when being told my the broker they offered one of the best offset accounts.
 
The CBA's line of credit only charges interest (no principal reduction).

Their offset account is almost useless as it's not a transactional offset. You can only deposit and redraw lump sums. It's not something you can put salary into and pay bills out of.
 
Hiya Chran

The MISA does work as a 100 % IO offset accoutn, though as Pete rightly points out, its quite clunky and archaic.......I have one so speak from experience. Its manageable, but just another set of balls in the air

ta
rolf
 
I have an offset account question...

If you have 2 properties which you owe 200k on each and you have 20k in your offset account are you paying interest on 180k or 190k each?

Do they split this amount and you only get 10k less interest or the full 20k for each loan?

hope this makes sense, I am also looking into an offset account and I dont know very much about them yet.

Regards,
 
Hiya TBI

the offset can usually be only linked to one loan, though you can have multiple offsets to multiple loans.

There are some products where there are several offset linked to the one loan

ta
rolf
 
If you have 2 properties which you owe 200k on each and you have 20k in your offset account are you paying interest on 180k or 190k each?

Do they split this amount and you only get 10k less interest or the full 20k for each loan?

hope this makes sense, I am also looking into an offset account and I dont know very much about them yet.

Regards,
If you have 2 IPs most banks will let you setup an offset account for each IP so you can juggle wat you how ever you want.

If they are at different Interest Rates then u put the funds in the account that is going to give you the most savings.
 
I just found this out on my first payment with St George Advantage package with the 100% Offset account. Not happy! I suppose its my fault for assuming it would work Interest Only when being told my the broker they offered one of the best offset accounts.

Hi jroth,

Try not to be too cranky with your broker. It is not something St George is forthcoming with. Most brokers and unfortunately their clients, have found out the hard way.:eek:

They call it their Mortgage Equaliser benefit. An Investment property can still have the "normal" Offset Facility but your broker needs to choose the option. PPOR's with non-investment loans do not have the option and the Interest Only Payment is "locked" with the amount saved from your offset paid onto your PPOR Loan.

Regards JO
 
Hiya Chran

The MISA does work as a 100 % IO offset accoutn, though as Pete rightly points out, its quite clunky and archaic.......
rolf

Phew, thanks Rolf, thats good to know. I've switched my PPoR to IO so we can dump everything in offset. I don't mind clunky, and the $500 min is annoying but happy as long as it offsets 100% of the interest.

In a few months I'll have enough saved for the first IP. Can't wait :D
 
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