Which would be better in this case? loc or offset?



From: Martin Vandenberg

Hi, it's great to be reading all these interesting posts again.

I just have a question:
My fiance and I are buying a $238,000 home with the intention to live in it for a period between 6 months and 1 year. After that we plan to rent it out, and eventually buy more ip's. Could I please have some insight into which type of loan would be most suitable, line of credit or offset account?


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Reply: 1
From: Russell Chellew

Hi Martin,

Both are good products and operate on similar principals .

It can depend on what percentage of purchase price you are borrowing ie LVR is over 80%,

Typically MAx LVR for Line of credit is around 90% whereas Maximum LVR for 100% offset is 95% (some lenders will add Mortgage insurance on top of 95% loan)

Mortgage Insurance premiums are more expensive for line of credit/equity loans than 100% offset loans .

Whilst Line of Credit products generally have higher ongoing fees and interest rate than offset accounts , they do have greater flexibility.

For instance with L/O/C you have flexibility of paying minimum interest only or P & I repayments during the 1st 12 months when you are living in the property and then revert to Interest only repayments when rent it out.

Most lenders offer honeymoon rates with 100% offset such as 5% 1yr then to S/variable around 6.32%.Line of Credit product dont normally have honeymoon rates in 1st year.

Also If loan amount is over $150K you could be eligible for .50% discount of S/Variable with 100% offset.

sorry I am waffling now !

Hope this helps.


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Reply: 2
From: Rolf Latham

Hi Martin

Simple answer

An offset product will protect your future taxable borrowings (once you make it an IP) while still allowing you to park your excess cash to save interest, working on the assumption that one day you will want to buy your own home.


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