Offset vs Redraw

[Ealbech]

I'm planning to buy my first PPOR in 400-450K range. I have 200K on my savings account.

The plan is to convert PPOR to IP later and buy another place to live. Should I go for offset account facility, pay 20% as a deposit and put everything left on offset account or get smaller loan and when redraw remaining equity to purchase another PPOR?

 

[Qlds007]

Has to be an offset account every day of the week.

Conditions are that it is a fully transactional, 100% offset account.

Go with an interest only loan and personally i think i would be copping the mortgage insurance and even going a 95% lvr.

Remember what you sit in the offset account can be used for a deposit on the new PPOR down the track. LMI will then become a tax deductible expense anyway so not worth quibling over.

Your mortgage broker should be able to point you in the right direction.

 

[Rolf Latham]

And the reasoning behind Richards good advice is that borrowing the max makes the tax deductions work the right way.

Drawing the equity for the next PPOR will make taht part of the loan non deductible

ta
rolf

 

[ziggy2214]

Is there a lender which lends 85% or 90% without LMI?

 

[Property Meister]

so if you don't need a transaction account , but simply an account that you can put extra funds in without penalty and withdraw at anytime, then LOE and Offset are identical, is this correct?

 

[The Y-man]

so if you don't need a transaction account , but simply an account that you can put extra funds in without penalty and withdraw at anytime, then LOE and Offset are identical, is this correct?

The withdrawing bit is the issue if the propoerty is going to be an IP in the future.

Once you "pay off" a portion of the loan, and redraw it, you can NOT claim interest on that portion (unless it was used to buy another income producing thing) once the property becomes a IP.

Offsets are structured in a way that has the same EFFECT as paying off part of the loan, but technically does NOT - therefore keepin the loan "unpolluted" from non-tax deductible transactions.

The Y-man

 

[danwatto]

Offsets are the best!

It's also harder for the bank to cancel or call back your redraw or line of credit, which some people here have had happen on this forum! I haven't heard of a bank taking your "savings" out of your offset yet though. It could happen, but is less likely and bad publicity.

 

[RumpledElf]

Rang the CBA today just to check if we can use an offset account and whaddayaknow? The answer was no. Redraw? No again.

Turns out we're on the 'ratesaver' and need to pay $300 to switch loan types and another $300 to change the security if we want to use redraw and/or offset. I'm thinking of just shoving all the proceeds from the sale of the other house (assuming it sells) except $20k in the loan and just leaving it in the great untouchable pit of loanness.

They'll probably still want to charge me $300 to remove the old place as the security though with my luck (xcoll with two properties as security). And then more money to refinance to do anything with it. Love those fees eh? All cancelled out by the fact this house will drop to being $30 a week and we'll own a 700sqm block of land freehold, but still. Fees!

Did I mention half of the $20k is going to go in fees too? Council fees ... green space fees ... land and titles fees ...

 

[Peter_Tersteeg]

Is there a lender which lends 85% or 90% without LMI?

Under certain circumstances, the answer is yes. A few lenders have alternatives to LMI, but you'll either need specific circumstances or be prepaired to pay a premium interest rate.