Interest only with an offset against PPOR

Discussion in 'Loans & Mortgage Brokers' started by Jamie Moore, 23rd Jun, 2015.

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  1. seanc

    seanc New Member

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    I have not borrowed any extra principal rather just redraw any extra funds i have parked in the loan account to save interest. So if i decide to rent the place out, i should just change to interest only and redraw all excess funds? Thanks.
     
  2. orchard

    orchard New Member

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    Thanks , very valuable information

    Orchard
     
  3. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    You have paid those funds off the loan. So you should not redraw. Change to IO and split the loan up to 80% with a separate split for future deposits money.
     
  4. cenz

    cenz New Member

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    Great thread thanks @Jamie Moore! @Michael_X directed me here for some clarification, and it definitely makes for a valuable lesson.
     
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  5. geoffw

    geoffw Moderator Staff Member

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    I've used offset for parking profits from sale of business and IP. In the case of the IP I had a big CGT bill due, but I had the money in the offset account for a year before I had to pay ATO.
     
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  6. Jamie Moore

    Jamie Moore MORTGAGE BROKER - AUSTRALIA WIDE Business Member

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    No worries - my pleasure :) Glad you found the info useful.

    Cheers

    Jamie
     
  7. chylld

    chylld Well-Known Member

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    IO with offset is common sense to anyone who had spent more than 10 minutes on SS, but I'm continually amazed at the number of people who only find out the hard way when purchasing their second PPOR in their late 20's / early 30's. Maybe it should be taught in high school :)
     
  8. Jess Peletier

    Jess Peletier Mortgage Broker & Finance Strategy, Aus Wide! Business Member

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    There is SO much that should be taught in high school, but isn't. And yet, so much valuable time wasted on trigonometry ;)
     
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  9. FirstTimeBuyer

    FirstTimeBuyer Well-Known Member

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    My friend setup his loan with P&I and I briefly mentioned the benefits of switching to an interest only loan. He was overly concerned cause he was confident he could restructure it however he needed to if his PPOR was to be converted to an IP.

    What would the costs be in redrawing on the paid principal and then restructuring the loan?
     
  10. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    No or very low costs in terms of fees, but potentially thousands in lost tax deductions
     
  11. Big Red

    Big Red Well-Known Member

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    Great post and as Peter said it should be tailored to your needs.
     
  12. starlight

    starlight Member

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    My PPOR is at LVR 95%, so is it worthwhile for me to bring the loan down to 80% LVR? So that I can switch bank with a better I/O without incurring any LMI?
     
  13. Jess Peletier

    Jess Peletier Mortgage Broker & Finance Strategy, Aus Wide! Business Member

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    Generally not - better off putting those funds in an offset account.
     
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  14. Jamie Moore

    Jamie Moore MORTGAGE BROKER - AUSTRALIA WIDE Business Member

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    What's the rationale behind the switch?

    Are you disciplined with money?
     
  15. almostthere

    almostthere Well-Known Member

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    If your LVR is 95%, haven't you already paid LMI? If you refinance to another lender you will loose the LMI credit.
     
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  16. Notlad Samoht

    Notlad Samoht Active Member

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    Thanks Jamie. I have one question for you ( or others) relevant to a scenario I am going through right now. I recently pulled 40k equity from an investment property for the purpose of buying a PPOR (we had minimal deposit besides this equity). The loans been approved, everything signed etc- just waiting for settlement which will be in a months time. Since all this has happened, we have decided that we can't move into the new PPOR and will just turn it into another IP for a few years. My question is: Is the interest on the 40 equity that will be used as a deposit for this new IP that was originally planned to be a PPOR, tax deductable?
    Thank you in advance.
     
  17. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Yes it generally will be as long as you haven't had it paid into an offset account with other funds.

    You will have a mixed loan - one loan with 2 purposes so make sure you don't pay anything into the loan other than interest and split the loan into the two portions when you get a chance - but before paying anything off it.
     
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  18. Notlad Samoht

    Notlad Samoht Active Member

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    Thanks Terry.
     
  19. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    Something about a frying pan and a fire I heard once.

    Im getting a bit of this reactionary concern. Credit unions and building societies and non Apra controlled funders wont sit by and watch margin float by, note Homeloans Ltd costs of interest will increase shortly.

    An appropriate response for many rather than hop out and pay a bunch new lmi is to maybe look to fix all or in part with their existing funder, while maybe not the best move middle term it may still provide some protection against variable rates going silly - which moving to cute lender x probably wont.

    ta

    rolf
     
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  20. starlight

    starlight Member

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