Is this setup the way to go?

Apologies in advance for the massive post with a massive amount of questions!

Ok, so my bank is ready to finalise the my refinance/equity release on my PPOR.

I think I need it setup the following way

1x PPOR Home Loan (P+I), plus 2 offset accounts. One will be used as everyday transacting account and the other will be the real offset (I want two to make sure I don't eat into the mortgage repayment funds or get carried away- out of sight out of mind is my thinking)

1x Split (a) with offset for $28k for husbands new work car
This will be tax deductible against his business income- I was planning to have this setup as P+I, but please do say if it should be IO.

1x Split (b) with 32k (funds were going to be used for a pool, but I am having second thoughts now that I want to spend money on a pool. Pool will cost 40k which is a $hi+load of $$$ for something we get to swim in for 2 months every year!

I have already got approval for all of this, So I am not sure whether to get the 32k anyway as a split, and pay all but $50 back into the split loan and if I do need it back or want it back at some stage then I can redraw it? Can and does it work like that? Our previous homeland never had a redraw facility so i am not really sure if it actually works like that, just assuming!

1x Split (c) for deposit for the investment property- IO, with offset.
My big question is, for repairs etc, should I try to get a LOC, or should I put my own spare funds direct into the loan account and use it to redraw for expenses? Is that even an option, to use redraw for expenses?

Is there anything I have missed?

Also one other question, since I am refinancing my PPRO, do I have the opportunity to start fresh as IO incase it ever becomes an IP (Which is likely when the kid grow up and I will no longer probably want to be in the suburbs/or will want to be close to where they settle)
OR is it already too late and too contaminated from the past 5 years of having the loan as P+I. There was never an offset linked to the original loan account if that makes any difference.

 

Have you sought tax advice about the loan for the car?
Keep this split IO if you can.

You can get the pool money as a separate split - but don't have to use it.

I assume you don't have any non-deductible debt, if you do, or if you get the pool that loan will be non-deductible so best to store you cash in an offset on this.

You could get a separate LOC for the repairs and deposits for the investment. I don't like parking money in offset accounts as this risks ruining deductibility of interest. if you do get a LOC never put any money in it other than the interest repayments.

Set up a 100% offset on the main IO loan used to buy the IP.

If you do have debt related to the purchase of the PPOR this loan could be IO, but you can't increase it otherwise you will end up with a mixed loan.

Seek specific tax advice before acting.

 

@Terry_w has written an excellent post about this.
Terryw’s Ideal Loan Structure

 

Hi Terry,
Thanks for the great advise. Can you tell me if you pay direct back into the loan account (not the offset) can you use it to redraw, that is if I can't get the LOC.

 

My non deductible debt is 270k- my PPOR- and possibly the pool, however If I don't get the pool I was thinking I could use this money to add towards IP if needed?

 

Hi @Otie

Don't try to DIY this. It will be an expensive mistake to get this structure wrong. Far cheaper to pay a knowledgeable tax accountant to evaluate whether your plan is appropriate.

 

If your loan has a redraw facility it may be possible. for some issues see:
Tax Tip 1: Parking borrowed money in an offset account

 

Hi Terry
Yes, it has a redraw facility, $50 per redraw
And should the LOC be against the new IP loan?

 

In that case I would set up a LOC against your PPOR to avoid the $50 fee and avoid tax issues moving money around. Once it is drawn convert it to a IO loan to get a lower rate.

the IP loan should be IO not a LOC. see
Tax Tip 20: Never use a LOC as the main loan!

 

Thanks, SO having the LOC against the PPOR won't mix them up, as long as the LOC is only used for IP expenses/or future IP deposits??

 

yep

 

Are LOC difficult to obtain? I am a bit scared to ask for one incase they knock me back- generally if you are already approved for everything else is it an issue or dos it really need to be applied for prior to the pre-approval stage?

 

Just for your info- my PPOR had a recent val done at 550k. existing Mortgage we are refinancing/releasing equity is 270k

 

I just double checked- my loan will allow redraw fro no charge, but a minimum redraw of $50. Details below.
Also which offset should I have the visa debit linked to?

Heres the main details below

Interest structure

Principle and Interest and Interest Only (maximum of 5 years). Additional terms and conditions apply to Interest Only loans.

Repayment frequency

Weekly, fortnightly or monthly (Interest only is monthly).

Extra payments permitted

Yes.

Statement frequency

6 monthly or on request (a fee applies for requested statements).

Offset Sub-account

Yes - 100% interest offset sub-account is available. The terms and conditions applicable to offset sub-accounts are set out in the customer’s loan agreement.

Repayment redraw

Yes - minimum amounts apply (minimum manual redraw amount is $1,000 and minimum online redraw is $50).

Card Access

Yes - Visa debit card(s) are limited to one loan split. If the split has an offset sub-account, the Visa debit card (s) will be linked to the offset sub-account. The fees and charges applicable to use of the Visa debit card are set out in the customer’s loan agreement and the Conditions of Use.

Split loans

Yes - maximum of four splits.

Fees and charges

Establishment Fee - $995 per loan account (includes 1 standard valuation).

Mortgage Risk Fee - up to 2.00% of the amount advanced.

Title Protection Fee - $400 per loan account.

Legal Fee - from $440 plus disbursements.

Monthly Admin Fee - $15/month per loan account (split).

 

This concerns me. This may not be an offset account but a redraw facility pretending to be an offset.

Who is the lender?

 

Pepper

 

I don't know much about their offset accounts. You had better check to make sure.

 

What question should I ask them to check this?, I will have a good read through the product details today.

 

Ask is it a true offset account with a different number to that of the loan.

Also ask if it is an acceptable offset arrangement that complies with Tax Ruling TR93/6 = which they probably won't be able to answer.

 

Thanks Terry your awesome. I need to get you to broker us a deal straight after tax time. We have to push this through for tax savings for this financial year but as soon as I can we need to refinance with full docs