looking for some advice for which account to offset

We have an Investment property PI loan (280k oweing) (it was previously PPOR) and another loan we took out secured through this IP (35k), we are only charged interest on the amount we takeout, not sure what these are called. we have spent about half of this so far on personal stuff.

currently I have 3 offset accounts for the investment property loan, But after reading some of Terry's Tips on offset accounts and deductible interest, I am thinking I should change these offsets to the 35k loan because it's non deductible, just not sure because the ip loan is a lot bigger. (we don't have any other PPOR loans)

my wife also needs a new car this year and we plan to redraw from the 35k loan for this.

1) should I switch offset accounts to the 35k loan?
2) when saving for the car, should I put extra payments into the 35k loan to redraw later, or into the offset?

Thank you for any advice.

 

Offset accounts are most effective against non-deductible loans. In this case this seems to be the $35k loan.

Put as much savings into the offset account as you can, including the car savings. The effect of the money is the same as paying into the loan account, but using the offset is more flexible for future needs should the loan become tax deductible for some reason.

 

1. Yes the $35k loan
pay all money into the offset
when buying the car reassess, but if the car is not business use you could either use the cash or the loan to buy it.

 

Your second loan for $35k, sounds like a Line of Credit (LOC), check your loan documentation to confirm. If so, I wouldn't bother with an offset against it, just pay the money directly back into the account and redraw when you want to buy the car.

You're correct that the interest on Loan 2 is not deductible, even if you use some $ for investing, as you've created a mixed purpose loan with personal spending.

Without seeing the actuals details of your loans setup, I'd use as much as possible from the 3 offsets to pay down Loan 2. The int. on the $280k loan is fully deductible, so make the most of it.

Once you've bought your car, pay Loan 2 back to $0-owing and you're ready to use it for deductible investing.

 

Thank you Peter and Terry, I will get that sorted.

I think it is just a regular PI home loan for 35k, it has a 30 year term at 4.22%, we have about 16k of it available and taken out and used the other portion.

that is the plan! Thanks a lot for your help.