Ubank home loan question

[coolcup69]

Thanks for the comments PT_Bear.

I would advise against moving your money to an offset account if you do intend to use it for investing.

Could you please provide elaborate on the above? I tend to agree with the point but want to make sure I am agreeing for the right reasons! A lot of posts I have read seem to indicate an offset is superior to a redraw but I can't see why for my situation. I can see where you have an investment property loan, an offset makes sense so you can draw money from the offset for personal reasons but have the loan interest remain deductible. But in the case of a PPOR I almost feel a redraw is better.

 

[Rolf Latham]

R. UBank doesn't write loans above 80% so it's a moot point with them.

But I recall they will only do refi loans not purchases in any case

ta
rolf

 

[Terry_w]

What exactly is REF?

it is LMI spelt differently.

 

[Peter_Tersteeg]

Could you please provide elaborate on the above? I tend to agree with the point but want to make sure I am agreeing for the right reasons! A lot of posts I have read seem to indicate an offset is superior to a redraw but I can't see why for my situation. I can see where you have an investment property loan, an offset makes sense so you can draw money from the offset for personal reasons but have the loan interest remain deductible. But in the case of a PPOR I almost feel a redraw is better.

Offset is a superior place to park your savings, but you've gone beyond that as you've essentially paid off your home. Now what you're doing is drawing on all the equity you've created (by paying off your home). This is where redraw comes in.

The rules are simple:
* Offset is for savings, a place to park money that's earned and you use it for non-deductible purposes.
* Redraw is where you keep equity and use it for tax deductible purposes.

There's a good argument that you should have put all your money into an offset instead of paying off your PPOR loan. Since you've done that however (paid it all off), you can now redraw that money and treat the original loan as an investment loan.

The reason you'd want an offset account for your PPOR loan is in the even that the PPOR someday becomes an investment property, all your money is in a savings account instead of a loan; you can access it to put against another PPOR and the first loan would be fully deductible.

 

[coolcup69]

I see. That makes a lot of sense. Can i run anadditional scenario past you so i can see if i understand this correctly? say I was to refinance with another lender into a loan with an offset and put all the funds I currently have in redraw into that offset instead would their be any adverse consequences?

My analysis is as follows

1. If I buy an IP and withdraw funds from the offset account to fund the deposit, I would have to create a loan split so that interest was deductible.

2. If I buy another PPOR using funds in the offset and turn the current PPOR into an IP then interest on the original loan would be deductible as per your example above.

Or, am I stuffed because by moving the funds from redraw to offset when I refinanced, it was not for an investment purpose so interest is not deductible in either scenario?

Bit confused!! Your posts provide a lot of clarity, thank you

 

[Rolf Latham]

Bit confused!! Your posts provide a lot of clarity, thank you

You are confused, well Im bewildered

Why would you not pick up the phone and talk with Pete ? and put in place a proper structure ?

ta
rolf

 

[HiEquity]

Rolf has an excellent suggestion right there.

For the benefit of others though, it's probably worth explaining that for tax deductibility the purpose of the loan is critical.

You had a loan that you took out to buy your current PPOR. If you wanted to turn that PPOR into an IP the interest on that loan would have been tax deductible. But you paid it off - from the ATO's POV that loan no longer exists.

If you now redraw this loan to buy a new PPOR and turn the old place into an IP then the ATO will ask "what was the purpose of the redraw?". The answer is to purchase a new PPOR. So the result is that the interest on this redrawn loan is not tax deductible - the loan is for a private purpose. So essentially you are stuffed on that front.

If however you had an offset account you could have used the cash in that account for the new PPOR and the existing loan would still be fully drawn, the purpose of which was to buy what is now an IP, so the interest would have been fully tax deductible - no problem.

Your best bet would be to stick with your current PPOR and just buy IPs from now on! Then the deposits will all be fully deductible... and you don't have the transaction costs of selling up and buying a new PPOR. None of this is any problem if you're happy with your current PPOR...

 

[coolcup69]

Thanks hiequity

I understand what you are saying but my question was whether a refi of the existing loan / redraw into a loan / offset account structure would change the analysis you just set out as I would then have an offset account from which I could draw funds. That is the link I'm missing but I suspect it doesn't change the analysis.

In trying to get an understanding of that before I can make a call on what changes need to be made with the help of a broker.

 

[Rolf Latham]

In trying to get an understanding of that before I can make a call on what changes need to be made with the help of a broker.

perhaps not dissimilar to the service adviser suggesting you do x to prevent y

A decent broker isnt an enabler or implementer ( ie order taker), thats the domain of the transactional banker or broker, not your trusted adviser.

A decent broker will challenge your assumptions, stretch your knowledge and walk from the business if you have it wrong and continue to insist on going down that path.

Challenging for many in my industry I know, but a great acid test

The challenge here today for someone that believes the low rate helped them to build wealth more quickly, many times, when one does a "forensic loss of opportunity analysis" the low rate saved them 10s of thousands in interest, but lost them x times that in opportunity to build wealth,

BTW cc, im not picking on you per se, just the concept of "low rate to get ahead"


ta
rolf

ta

rolf

 

[Peter_Tersteeg]

There are a number of ways you can achieve what you want both with and without an offset account, but you do need to keep things within some parameters.

UBank doesn't deal with brokers, but as Rolf indicated I'm happy for you to call and have a short chat about how this can work for you.

 

[macca446]

Hi all,
Can I add a question in to this thread, I have an existing loan with an offset linked to my ppor loan which has a redraw facility when i want to purchase another IP can I just transfer funds I need into my Offset account .

Regards,
Macca

 

[Rolf Latham]

UBank doesn't deal with brokers, but as Rolf indicated I'm happy for you to call and have a short chat about how this can work for you.

U bank doesnt deal with purchasers either so CC needs to have a viable option to settle any purchase.

ta

rolf

 

[Aaron_C]

In that case you'd create a new account split for the new loan and use that for the IP.

 

[Peter_Tersteeg]

Can I add a question in to this thread, I have an existing loan with an offset linked to my ppor loan which has a redraw facility when i want to purchase another IP can I just transfer funds I need into my Offset account .

I'd avoid this, it muddies the water with regards to the use of the funds. You also want to be careful about how you redraw the funds out of the PPOR loan, you should split that loan into an amount owing and the amount you'd want to redraw for investment purposes here. Proper structuring is critical in this sort of transaction. If it's not done correctly you may end up missing on a lot of deductible interest.

 

[macca446]

Thanks guys, over time I now realize that when my loans were no structured well with the broker I used as all of my IPS are crossed letting available equity not to be drawn out.I do not know if I can change my structure on them until my fixed rate finishes next January.

Macca

 

[coolcup69]

There are a number of ways you can achieve what you want both with and without an offset account, but you do need to keep things within some parameters.

UBank doesn't deal with brokers, but as Rolf indicated I'm happy for you to call and have a short chat about how this can work for you.

Thanks very much. I have sent you a PM so we can discuss further offline.