Offset against PPOR or Invest

[asryan]

Hi,

I'm sure this question has been asked many times on this forum and here it is again. If you had $50,000 in savings would you leave it in the bank to offset against your mortgage or would you use it to invest in a property that is likely to be negatively geared.

Also, if you only had $50,000 to cover a 20% deposit and stamp duty am I right in thinking that you can only buy an investment property for about $200,000?

Thanks and apologies in advance for the very basic questions.

 

[Terry_w]

Get the answer wrong to this one and it will cost you $50,000 x 5% = $2500 per year in lost deductions for as long as you own the rental property.

The answer is:
1. Leave it in the offset account attached to your home, and
2. Borrow $50k against your home to invest.

This way you can claim $2500 per year in extra deductions while saving $2500 in non deductible interest for the life of your loan.

 

[Rolf Latham]

assume your home loan is 250k

ask your lender to split the loan

200 k with offset

50k with redraw

take your 50k cash

place it into the 50 k home loan split

when your IP needs settling, draw the 50k from the 50 k split


Congrats, you have just implemented debt recycle 101

ta
rolf

 

[Hodge]

Hey Rolf, sorry I'm having one of those days. Could you explain the benefit of this?

 

[ZOMG]

assume your home loan is 250k

ask your lender to split the loan

200 k with offset

50k with redraw

take your 50k cash

place it into the 50 k home loan split

when your IP needs settling, draw the 50k from the 50 k split


Congrats, you have just implemented debt recycle 101

ta
rolf

What's the tax benefit of this and are there any downsides?

 

[Rolf Latham]

assume you have 50 k cash and a 250 k home loan

by doing the debt recycle 101 you are converting 50 k of "bad" ( non deductible) debt into better debt ( deductible)

benefit at the best margin is for those on high incomes, say 48 c in the dollar benefit = 1200 approx a year tax dedn at todays rate,


but even for average peops its approx 700 to 900 a year compound tax benefit

all for some simple structuring


Its simple, but not obvious

dont pay me

send gifts to your charity of choice

ta

olf

 

[Hodge]

Makes sense. Thanks for clearing that up.

 

[danwatto]

Rolf - if you wanted to do this without splitting the loan, say by paying down some of the existing loan and opening a new line of credit - I assume we have to get rid of the redraw amount or the lender will still consider that being "owing" on the mortgage and unavailable for new lending?

How easy is it to get the lender to cancel the redraw, is it juts a phone call for most lenders or do they need to reset the loan somehow?