Please help---do I need to set up offset account?
- Thread starter violots
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An offset account works well with an interest only loan. If you think you may turn your home into an IP at a later stage, it is a good idea. CBA have an offset account called MISA. There is a minimum of $1k to open it. If you are using the wealth package ($350pa) you get a free gold credit card. You can put all your expenses on it and keep your funds in the offset account. You can then pay off the card using the offset account each month. This minimises the interest you pay on your home loan.
All the best
http://www.commbank.com.au/personal/accounts/mortgage-interest-saver/default.aspx
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IO vs P&I
Hi Yo Yo Ma
We have the package that you are talking about, it's on our first home and we make our first repayment next month
We have the offset account set up, we are going to pay principle and interest
and in the future the property will become an IP. Our mortgage is only $230,000 and our mortgage broker told us that there wasn't really any saving/value in going IO. Neither of us have the knowledge base to make our own assessment - hence I spend hours a day reading posts What is your perspective on the two options?
Hi Yo Yo Ma
We have the package that you are talking about, it's on our first home and we make our first repayment next month
We have the offset account set up, we are going to pay principle and interest
and in the future the property will become an IP. Our mortgage is only $230,000 and our mortgage broker told us that there wasn't really any saving/value in going IO. Neither of us have the knowledge base to make our own assessment - hence I spend hours a day reading posts
What is your perspective on the two options?Hi SmithyWe have the offset account set up, we are going to pay principle and interest and in the future the property will become an IP. Our mortgage is only $230,000 and our mortgage broker told us that there wasn't really any saving/value in going IO. Neither of us have the knowledge base to make our own assessment - hence I spend hours a day reading posts
A lot depends on your individual circumstances but if you plan to turn the PPoR into an IP, an IO loan is usually the best way to go. This will maximise you tax deductions when the property converts to an IP. For example, with P&I if you owe $180k when you convert to an IP, only $180k of interest will be tax deductible. With IO, if you owe $230k and have $50k in an offset account (which you use for your next purchase), then the full $230k will be tax deductible.
One circumstance where it may be better to pay P&I, is if you aren't very good at saving / budgeting. By paying P&I, you can use it as forced saving.
Keep up your learning by reading the forum and feel free to ask questions. Note I am not an accountant and you may need specific advice.
All the best
Spot on. I/O keeping surplus in offset.This can make a substantial difference if it later becomes an IP.
Also the interest saving is essentially the same so unless you spend that "principal" sitting in the offset it's definitely the way to go.
A client of mine ignored this choice i gave him about 6 years ago. He then paid off $400k! on his home and wanted to then rent it out and redraw that money towards a new home.
I explained this is exactly why i had suggested an offset account initially. He told me he thought i was pushing it because i would keep more trail commission!!
He trusts me now.
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