LOC in a falling market

Suits our purpose just to get access to it while we are still able.... more of a rainy day if the shizz hits the fan type fund ... not concerned about future deductibility of interest.

 

Why throw money away?

What about the current deductibility of interest? You have borrowed money - which creates an interest expense. As the borrowed money is in the PPOR offset you are saving interest there - non deductible interest. Therefore the interest on the investment loan won't be deductible.

You could save yourself money now and in the future.

 

Old loan was $470k

Refinance up to 80% of new $800k Val which allows us to borrow $640k

The new loan is split into $470k which remains deductible and $170 surplus sits in offset.

I am not losing anything “now”.

I understand the $170k I’ve dumped on the offset won’t be deductible in the future.

But I may not be able to borrow that in the future.

Its a buffer for the future... who knows what’s around the corner

 

So the refinance is on an investment property which is deductible.
You've drawn out the cash from an IP and put it in the offset of your PPOR?
Aren't your rates for the IP higher than your PPOR rates?

 

Marginally, we have IO on our PPOR so the interest rate isn’t a huge difference. it costs us $300 per year to pay the interest differential on the cash out refinance portion. I see that as a minimal cost to have instant access to the money IF needed. Overall though the refinance from ME to ANZ on the original loan amount saves us $1800 per year due to a lower rate. So it’s costing us less overall with the refinance.

 

I guess your lender handles it differently. I can draw equity out similar to a Master Limit (like AMP). The loan amount gets increased but if it's not used, I don't get charged. So there's no need for me to 'use' it by moving it out to an offset. When I'm ready to access the funds, it's available. Strange that you need to draw it out as a "use it or lose it" situation.

 

What about rate differences?
The PPOR should be on a lower rate.

BTW it is easy to make the loan deductible in the future. Just pay it down and redraw and don't invest straight from the offset.

 

So that sounds more like a line of credit then?

 

Yep $300 per year it costs for the rate difference.

And yes had also thought that paying out the loan in the future and then borrowing directly for investment might have been an option.

Thanks

 

It sounds like it is not as bad as I first though!

 

Yeah it's an old LOC product which is no longer available. No fees with all the rates of a normal OO P&I or IO loan. Best of both worlds.

Link to older post in this thread about it