Loan Tip: Not everyone needs an Offset Account

I've neen thinking about this during this week.

I already have have an IP loan with offset. I am now considering another investment puchase.
I have to decide between
A) get another loan with offset.
or
B) get a basic loan without offset and save 0.3%. With several loan splits

I figure that until the day comes that I have fully offset my original IP then I have no need for anothet offset. Then when that day does arrive, I could then refinance.

The bank offer split with loans aswell. So I could also set up a few loan splits which might give some flexibility too.

 

How long will it take you to fill the offset? If a while then you probably won't need one - unless perhaps if your new loan has a higher rate

 

New loan will be 0.27% lower.

I'll have a crack at negotiating lower rate with offset. But I don't really need it.

 

I specfically wondering about Gateway bank. After rate cut it should be 3.67%

Low Rate Essentials Loan

Given I don't have a great need for an offset and I have 20% deposit then I could even consider a non bank.

 

I noticed macquarie bank are charging $0 per month for a "basic home loan" but if you want the offset version they charge $248pa

Makes good sense to me.

 

Me too. But, while I’m good with numbers, I’m going to need to ensure that I’ve got a very clear head before I do it (ie. doing it with a glass of red sitting in front of me probably isn’t a good idea).

 

Is the ANZ simplicity plus rate a % discount from their standard variable rate? I saw that at the moment ANZ is offering 3.66% for investment loans under simplicity plus produt. But the question is that will this rate of 3.66% go down or up when the RBA moves rates up or down? Or is it a stand alone product and and not a % discount?

 

I am like the latter where I want to pay down my P&I as fast as possible since my circumstances don't really allow equity play or investing in the short term anyway- which is why I am thinking of going with Ubank for my first PPOR as it offers low rates but comes without an offset account.

However if I do want to get an IP in the long term can I just refinance to another bank that has an offset account then without much downside to it?

My analogy is like being safely incubated in the Ubank world with low rates, no ongoing fees until one is ready to join another bank that has higher rates, ongoing fee with an offset account. Could this be a sound strategy or do you see any pitfall to this?

Keeping in mind that Ubank doesn't charge an exit fee.

 

yes if you want an investment property you would be able to refinance when need to. Exit fees would be discharge of mortgage of about $350.

If you couldn't refinance because of serviceability, you wouldn't be getting an investment property anyway.

 

Hi @Terry_w

I'm looking at switching to either Athena or ubank solely based on their lower rates. They bother offer redraw.

What are the tax implications (if any) of withdrawing redraw for use other than for the investment itself?

Should a property investor be looking at Offset instead and does that have any effect on tax?

 

if you pay into a loan you are making a repayment which will reduce to debt associated with the original use. If you redraw this will be treated for tax purposes as a new loan with deductibility depending on what those funds are used for.

It will also be a mixed loan.

My advice would be don't pay extra into an investment loan, but use an offset instead.

 

Thanks Terry, I thought as much.

 

If you have say, 4 home loans (investments) would it be best to put all your savings in an offset (100 percent) against the investment with the highest interest rate?

Or could it be better to, instead spread your savings out across multiple offsets (all 100 percent) or perhaps put all your savings into an offset (100 percent) against the highest loan amount? (but not the highest interest rate)

Sorry, should work this out mathematically myself but just wondering if anyone else knows the answer.

 

It depends
If the ownership is all the same (of the properties that the loans relate to) then generally you would want to put the money in the offset on the loan with the highest interest rate.

But there are exceptions
- some IO loans
- intending to move into one
- intending to sell one property
etc

 

The poster does mention 4 loans as investments, but always consider the highest ‘after-tax’ interest rate.

Ie if there is a PPOR loan @ say 2.3% (non deductible so 2.3% after tax)
and an IP loan @ say 2.8% (deductible so effective 1.76% after-tax on a 37% marginal tax rate), it would ‘normally’ be best to offset the PPOR even though it has a lower interest rate.

Again depends on your personal circumstances so if unsure seek professional advice.

 

Need a little calculator to work this out

Eg

Unloan at 5.59% with redraw only

Or your loan with offset (insert amount) at ....% plus som ebanks charge extra to have that redraw facility

 

Of geepees alot has changed for me since I last posted. Bought homes, major renovations, kids, changed workplaces, lots more debt. Covid loxkdowns. Our new kitchen even has an air fryer setting on the over. The only thing I didn't do was buy a caravan or car.

I refinanced all my loans to being redraw only. With the one exception of my new ppor. Which will take me a long time to fill at my current rate

 

You would unlikely need an offset on an investment loan until the offset on the non-deductible loan is full.