Question Re parking cash against current IP

[Sam_H]

Quick question...

I'm thinking of selling our PPOR, and moving into our current IP for a period of say 18 months or so to save a good deposit for a house - current IP loan is $300k I/O

What I'd like to do, is switch loan type (currently use CBA) - so that cash released from the sale of our PPOR (approx $280k) can be offset against our current IP loan. ie have an effective loan of say $20k (instead of the 2 mortgages we have now)

What I'm unsure about is - can we then drawn down on the $$ in the offset to buy a house, and hence leave the original $300k against the IP?

Any advise appreciated!

cheers
Sam

 

[Kristine..]

Hi Sam

Yes, that's quite straightforward.

We did essentially the same thing. Sold one house, moved in to the investment house, parked the sale proceeds in an off set account linked to the investment mortgage.

For the year or so we where in the investment property, we paid about $25 per month in interest on the investment loan, and when we drew the cash out again to buy the next 'home' the investment loan had not been tampered with, the property was available for rent again and the investment income / expense scenario simply resumed where it had left off.

Obviously, during our period of occupation all expense of the property was ours just as it is with any 'home', but as the loan itself had not been touched there were no ongoing tax implications to concern ourselves about.

Just make sure you don't deposit / redraw into the loan itself, as that is 'intermingling' which definitely is a tax complication. But off set is separate and a very clear arrangement.

Cheers

Kristine

 

[Sam_H]

Excellent news Kristine...thankyou...

 

[redwing]

Hi Kristine

I asked Westpac about an Offset Account against one of my IPs a while back (its FI-IO) and they wouldn't/couldn't establish an offset as it was FI-IO, doing something would've had to have meant restructuring?

REDWING

 

[Rolf Latham]

Hiya Red

Yours was quite normal challenge. You would have been on the WBC VRIPL = Variable Rate Investment Property Loan. They only have offset on Their Rocket Repay Product and this would have required a switch.

With CBA its similar, the 100 % offset product is available only on the Standard Variable, and not the Basic Products - in the CBA case you are looking for the MISA offset acct.

In terms of can you, Sam , I think Kristine has already answered that nicley and the benefits gained.

This is one of the situations where foresight and beginnining with the end in mind can be helpful. While not a specific challenge for you Im sure Sam, I have found people taking on cheap rate products and then having a problem with linking offsets or getting a decent fixed rate.

While it doesnt always hold, a basicv rule of thumb for most cheap end of town products, there are no offset accts available. A notable exception is Maq bank because they have a banking licence................

Also be aware that many offset accts are not true repayment offset accts. That means, that the repayment remains the same regardless of the amount in the offset, but the balance/principal reduces by the interest saving. Often this is ok for a PPOR loan, but deadly in the case of an IP loan. The MISA product with an IO loan works OK in this regard

Begin with the end in mind should fix most challenges I think.

Ta
rolf

 

[Sam_H]

Hi Rolf -and thanks for your input
I have the basic variable I/O loan (6.81% i think?)

I have been in contact with the bank - but they refuse to be of assistance because I was directed to them in the first place by a broker...who I cant seem to get hold of? (even the banks contact details of him are outdated?)
- which is certainly frustrating!

My understanding is that i can switch (with a $300 fee) to a different product?
I guess the key would be to go with the MISA then

Will let you know how i go!

cheers

Sam

 

[Rolf Latham]

Hi Sam

You might find there is a cheaper solution.

If you cant get a hold of the original broker, the there are plenty that will help :O), though some get their knickers in a knot coz there is no upfront commission on a re work................. but then most good brokers work for the long term, not the here and now.

The Pro pack option (aka Mortgage Advantage) may be a better option but without knowing full details its a bit hard.

ta

rolf