Money in Offset And Equity - How to use both towards a new IP loan?

Discussion in 'Loans & Mortgage Brokers' started by Kate, 20th Apr, 2017.

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  1. Kate

    Kate Well-Known Member

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    Hi All, I am asking this question on this forum because I want to confirm this is the best strategy according to my broker. I am beginning my journey in investment and I would like confirm my broker suggestion/my understanding.

    I have 100k in equity of my PPOR and 30k in my Offset account.

    I am applying for a new loan with my bank to withdraw my equity. (avoid cross-collateralisation) .

    Should I make a 30k payment towards my PPOR loan and apply for a 130k loan? Once that is approved, I will put this 130k in a new Investment Offset (variable) - Once I buy the Investment Property, I am intending to fix my loan, but for now (i haven't found the IP yet) - the 130k will be in an offset account so I wont pay any interest. Is this correct?

    is this the most tax effective approach?

    If not, what would the experienced investors / savvy brokers suggest?

    thanks

    Kate
    -- may the odds be ever in your favour!
     
  2. Property Twins

    Property Twins Mortgage Brokers & Buyers Agents Business Member

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    Sounds like your broker is giving you the right advice interms of putting in the savings in the PPOR and then re-borrowing for the purchase.

    Is the 30k the only set of savings you have ? If so my question would be, if you can withdraw 100k equity, why would you want to put the 30k in? I'd personally prefer having the 30k as buffers for risk mitigation / personal expenses.
     
    Kate likes this.
  3. tobe

    tobe Well-Known Member

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    Sounds about right. It means instead of contributing the $30k you paid tax on and saved towards the investment and reducing your loan by that amount and the possible tax deductions, you are making the investment borrowings larger meaning more interest to claim against the rental income. It also means a smaller ppor loan.

    The only suggestion I have is to make sure you are comfortable losing access to the $30k. Once structured like this you can't do that OS trip or take some time off work with it etc.
     
    Kate likes this.
  4. Terry_w

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

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    Get some tax advice too
     
  5. Jerry O

    Jerry O Well-Known Member

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    What's your price point for the next investment property purchase?
     
  6. Kate

    Kate Well-Known Member

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    Thank you Property Twins and Tobe for the prompt response.
    Property Twins , I am actually leaving other 20k as buffer in my offset for emergencies. I understand it is necessary to have a buffer, so i am not counting on this.
     
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  7. Jess Peletier

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

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    Please make sure the $100/$130k is a seperate loan split and not just making the current loan bigger.

    If you don't need the $30k for the purchase I'd be more inclined to leave it in offset as it just keeps it accessible and in cash rather than redrawn loan funds.
     
  8. Kate

    Kate Well-Known Member

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    Hi Jerry - Between 600 to 750k. Do you think I am putting too much towards the deposit?
     
  9. Property Twins

    Property Twins Mortgage Brokers & Buyers Agents Business Member

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    Looks like 88% LVR. Not too much, just about right for LMI.
     
    Kate likes this.
  10. Peter_Tersteeg

    Peter_Tersteeg Mortgage Broker Business Member

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    By paying $30k off the existing loan, you're essentially creating an extra $30k in equity. You're then borrowing it back for investment purposes. Basic debt recycling, your broker seems to know what they're doing.

    If you're planning to fix the non-deductible loan in the near future, make sure your broker is aware of this and they're also aware that you'll need to leave some of it as variable to allow the rest of your cash remain in offset. They can structure around this now, rather than go back next week. It'll save them a bit of work.
     
    Kate likes this.
  11. Anthony Brew

    Anthony Brew Well-Known Member

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    Question from a noob - how is paying it off to take out out better than just using it as cash in the next property?
     
  12. Terry_w

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

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    Kate likes this.
  13. Terry_w

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

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    Paying down non-deductible debt and creating deductible debt. on $30k at 5% this would mean $1,500 per year in extra deductions potentially.
     
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  14. Peter_Tersteeg

    Peter_Tersteeg Mortgage Broker Business Member

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    You're paying off non-deductible debt. When you borrow it back for investment purposes, the debt is now tax deductible.
     
    Anthony Brew likes this.

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