Interest Only vs P&I

That is the whole reason why I love Offsets with IP loans so much.

While the personal funds are in the Offset, your interest costs are reduced. Then, when you withdraw some money (for a holiday, a wedding, a car, ...) then the extra interest costs due to the withdrawal are tax deductible.

Can’t do that with a P&I loan.

 

I thought they weren't tax deductible if used for personal purposes?

 

Side question and showing my naivety here...with minimum P&I repayments and assuming the interest rate stays exactly the same for say 30 years...do the minimum repayments reduce as more principle is paid off as you progress through the loan term?

Pretty sure they don't but just checking.

 

Tax Tip 82: Taking money from an offset account on an IP and Claiming Interest Tax Tip 82: Taking money from an offset account on an IP and Claiming Interest

 

No, the minimum P&I repayment is calcuated to pay the loan down to zero over the loan term. If you make the minimum payments on a 30 year loan, it will take you 30 years to own the property outright.

 

Some banks will allow the minimum repayments to be reduced so that your loan term will remain 30 years - or whatever is left on the term.

 

Tx I stand corrected.

 

Sadly won't happen in my case bc I never paid extra (ever) other than the minimum.

 

They are if it is your cash!!!

 

but if you had an offset account things may be different.

 

This is why saving cash in an offset account can help you retire faster than paying off the loan. Any person expenses would be subsidised by the tax payer.

 

Another potentially stupid question:

If I had a P&I loan, could I arrange with the bank to separate the interest component...which will be debited towards the loan, and the principal component which will be paid into an offset account??

 

Yes - use an interest only loan!
Pay as if PI, into the offset, and let the bank debit the interest from this account.

 

See also
Tax Tip 46: Want to Pay IO on a PI loan? Tax Tip 46: Want to Pay IO on a PI loan?