Offset account - two loans

I currently have a loan for IP

Loan A at 5% with offset account

I'm getting a new loan for IP

Loan B at 6%

I can get a new offset account with the new loan but there is no need for this as only one account need to be offsetted. On settlement day, I'm thinking of switching the offset from loan A to loan B because B has the higher interest. Is this okay from tax perspective?


Now taking this further,
Loan A has addition funds in the redraw account ( this is before I read terry tax tips so please don't shout at me ).

As loan B interest is higher, it would be better to move the money in the redraw account to the offset account for loan B. In order to do this, I need to split the loan? is this correct way of doing it?

 

Insufficient information. Your Comment - Im getting a new loan makes no sense. If you own it how can you get a new loan to buy it ?

 

Yep more info needed. What is a redraw account?

 

I have a feeling I understand your question. I might be wrong as I am reading between lines which can be dangerous.

I would drawdown to the full extent possible on loan A to reduce the interest payable on loan b.

I would take the cash out of loan account A offset and put this into loan account B offset.

Both strategies will reduce your interest cost of the higher loan (B).

As a seperate measure you might want to look at a split facility for loan A. This will allow you to track the portion of the loan that relates to rental property A and the drawdown on loan A to pay for rental property B.

You should try to avoid crossing loans if possible (offering property A and property B as joint security for Loan A and Loan B).

? Maybe I missed the point but I had a crack.

 

Would this result in a mixed purpose loan?

 

Sorry the new loan is for a new IP. Not for the same one.

 

My wording is probably wrong so apologies.

What i meant was, for the first loan... its an offset account with redraw facility. I have paid more repayments than the minimum repayment amount so have extra for redraw. I know this is bad but the damage is done.

 

Yes this is what i hope to achieve

Yes but once i redraw from loan A and put into loan B, i've mixed the purpose of loan A.

Yes this is what I want to do. Can you explain further how to go about this? What exactly do i need to request my Bank to do.

Loan A and Loan B are not crossed. Thanks to the brilliant contributors in this forum that have previously advised me not to in another earlier thread.

 

Ok, I see then.


Split loan A into 2 loans

Borrow the extra funds, via split B, and pay these into loan B (not the offset). This will save you 1% on the value of those funds. No mixing will occur as this is just a straight refinance.



Move the offset account to loan B too as this will also save you an extra 1%

 

It is generally simple (unless the bank is NAB). Just ring or ask your broker to ask for the loan to be split into 2.

Example.

Your loan is $100,000
You pay $20,000 in
Your balance is now $80,000, but limit is $100,000 and available funds in now $20,000

You can ring the lender and ask for the loan to be split into 2 portions:
$20,000 and
$80,000

However perhaps some lenders may have problems if the $20k portion will be $0 balance. Who is the lender?

 

If i draw down the funds from loan A, split it and then pay the extra into loan B - wouldn't that be equivalent of paying more than required. Wouldn't it be better to switch the offset so that it is offset against B and then pay the extra funs into B?

How will splitting the loan impact my original loan. Will they come back and need me to sign all the loan documents and read all the terms and conditions again?

So when the split loan of $20K loan is created - this in effect means I draw down the $20K from loan A to put into this split loan. Then i transfer all the money from this split loan into loan B.

So on the split loan, I will be paying interest only on the $20K? Wouldn't this be counter intuitive because while I save 1% on the $20K i move to loan B, I still have to pay the 1% on the split portion.

Unless, the interest rate for the split portion retains the original rate of loan A which is 5%. Is this what you mean?

 

If you split the interest rate should remain the same.

If u borrow from one loan to pay another this is just a refinance so you are not paying debt down overall. Just shuffling money.

 

Thanks

Another thing is my loan A is interest plus principle. For the split loan, I should make this interest only.... and if i do, the interest potentially goes up right as interest only loans have higher i/r.

Is my understanding below correct?

1. Split Loan A into Loan A1 and Loan A2. Loan A2 should be interest only.
2. Redraw money from Loan A1 and put into Loan A2
3. Move money from Loan A2 to Loan B. Not the offset account but the actual loan (Terry can you explain why to the actual loan and not the offset?)

 

@giraffez - I think Terry is giving the clarification to the question you asked me so I might let him run it from now on.

If not please let me know and I will try to help.

 

Nope.

PI changes everything

 

Thanks Ross

Sorry can you pls elaborate, when you said nope did you mean my understanding is incorrect?

And PI , are you saying to keep it PI?

 

Your understanding is not correct

And forget what I said above, if PI you have additional things to consider.

 

Terry can you please point out where I have gone wrong?

 

Redraw money from Loan A1 to A2 is incorrect. You split the loan and then draw down A2.



But since you will have one loan PI you need to consider what the effects will be if principal is being paid off.