Term Deposit vs. IP offset

[EN710]

Hiya,

I'm calculating whether I should pit the money in deposit or IP offset. The number a bit rounded, but I need keen eyes to see whether the process is correct...

Term Deposit
Balance $51,500
Term deposit rate 5.9% running until 2016 - I have the choice to keep it or release it without penalty
Yearly cashflow = $3038 before tax

IP
Loan $181600 with offset
Current variable rate 5.4% plus yearly fees $375
Interest yearly without $51,500 in offset = $10,181

Calculations

IP rent $280 per week
Net rent after cost (50 weeks, management fees, insurance, council and water and misc) = $9118

Net cashflow if keeping term deposit

Rent minus loan interest = $9118 - $10,181 = - $1063
Cashflow from term deposit = $3038

Net cashflow before tax = $3038 - 1063 = $1,975
Net cashflow after tax (@30% income tax) = $1,382


Net cashflow cancelling term deposit and put the money in offset

Interest yearly with $51,500 in offset = ($181,600 - $51,500) x 5.4% + $375 = $7400

Rent minus loan interest = $9118 - $7400 = $1,717 before tax

Net cashflow after tax (@30% income tax) = $1,202


Keeping the money in the deposit = approx. $180 more in cashflow and therefore keep cash in term deposit.
This will change if the loan rate increases of course, ut it just means that the term deposit should be released then and not now.

Is this correct? Am I missing anything?

 

[alexlee]

Why such a convoluted calc? The difference is 0.5% x 51,500 = 257.50 before tax. At 30% tax that's $180 after tax.

There is no difference between getting more interest income and paying the same amount on the IP loan, so the only difference is the difference in interest rate.

It would of course be different if the offset was against a non-deductible loan.

 

[EN710]

Why such a convoluted calc? The difference is 0.5% x 51,500 = 257.50 before tax. At 30% tax that's $180 after tax.

There is no difference between getting more interest income and paying the same amount on the IP loan, so the only difference is the difference in interest rate.

It would of course be different if the offset was against a non-deductible loan.

Uh... I thought it will be slightly different if I'm on different tax bracket and if my IP increased in rent (hahaha)

But yeah, that's a lot simpler...

 

[D.T.]

Do you have a nom deductible loan with an offset it could go into instead? Thatd outperform both of the above

 

[EN710]

Do you have a nom deductible loan with an offset it could go into instead? Thatd outperform both of the above

Have the non deductible loan covered, so this is an extra.
I want to buy another IP this year so want to maximise cash flow and savings

 

[HD_ACE]

For the minimal benefit, i would rather just keep it in the offset.
Quick hassel free access to money (cash) is more beneficial than an extra couple of hundy a year should the need arise.

Cheers

 

[EN710]

For the minimal benefit, i would rather just keep it in the offset.
Quick hassel free access to money (cash) is more beneficial than an extra couple of hundy a year should the need arise.

Cheers

I think so too, but considering that the bank is happy to release the fund a bit later, I think accessibility should not be too bad - it's unlikely I will use the entire $50K in one go unless for big emergencies (this is buffer money)