Offset Account & IP Funds

Hi,

We are new to the IP market and are just in the stages of applying for a loan using the equity from our PPOR to purchase a property in the UK.

We have been told by NAB that the loan for the IP has to be separate to our PPOR loan so the breakdown would be as follows:

PPOR - home loan $295000 currently owing @ 4.14%
IP - home loan $150000 rate offered 4.29%
Both PI

We have a current offset facility on the PPOR with $100k in the account.

What I am asking is what would be the best way to distribute the funds we have in the offset account is it worth having another offset account attached to the IP loan? As we only have the one savings account.

We initially just wanted the funds added to our original home loan, same interest, same period and same offset but they have advised this cannot be done as it is for an investment purpose.

Any assistance would be much appreciated.

 

Hi Nicola & Wayne,

When it comes to having PPOR and Inv debt, your aim should be to keep a very clear separation of the two for taxation/accounting purposes. Once you start mixing INV and PPOR debt the waters become murky and you may lose some potential tax deductions.

If you have sufficient equity (and income to service) in your PPOR, it is quite likely best to borrow the full amount + costs for the investment property keeping the $100k in your PPOR offset.

I recommend you speak to one of the experienced brokers on this forum who specialise in investment lending..

 

Hi Nicola and Wayne,

You will be best off keeping the IP loan completely separate from your PPOR loan - as mentioned above it will make a tax mess otherwise.

Keep your offset against the PPOR, and if/when it's fully offsetting the PPOR loan, then you can get one against the IP. The goal is to pay zero non-deductible interest, and maximise the deductible.

 

You have to be careful not to contaminate the borrowed money.

I would suggest you use a LOC loan initially and the convert this to a IO loan once drawn.

in the UK you might have to set up a clean savings account with no money in it so it can receive the borrowed funds and keep them uncontaminated. From there you can pay money out to purchase the property.