Offset Account v Extra Debt Repayments

Discussion in 'Money Management & Banking' started by Herluf, 3rd May, 2019.

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  1. Herluf

    Herluf Active Member

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    Hi all,

    I'm looking to reduce bad debt rapidly (primary residence) and I'm currently using an offset account to pour all available funds into. However when using online tools it seems that extra payments is a better option, but different bank calculators all have different results. Any experts shed some light on this for me please?

    Rgds
     
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  2. Terry_w

    Terry_w Broker, Lawyer, Tax advisor, Debt Recycle advisor Business Member

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    It should make no difference in terms in interest saved.
    But why do you want to do this?
     
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  3. kierank

    kierank Well-Known Member

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    Totally agree.
     
  4. Herluf

    Herluf Active Member

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    Following a discussion with the bank, it was suggested to pay down the primary mortgage faster. Then use the equity and additional cash to purchase more property.

    I'm new to this...
     
  5. Terry_w

    Terry_w Broker, Lawyer, Tax advisor, Debt Recycle advisor Business Member

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    Best to seek advice elsewhere.

    The issue is if you pay down the loan and then borrow via a new loan you will pay investment rates. If you pay down the loan and redraw you would get owner occupied rates.


    have a look at my tax tips as there are many tax issues to consider, but if you set things up well, you can both pay down your loan quicker, reborrow to invest, increase tax deductions and save interest.
     
  6. TSK

    TSK Well-Known Member

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    Do not use redraw. Use offset. It will give you the flexibility should you move that you can withdraw it and use it against no deductible debt (in another offset). If you use redraw you'll be making a mess out of the loans.
     
  7. Terry_w

    Terry_w Broker, Lawyer, Tax advisor, Debt Recycle advisor Business Member

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    This won't help with debt recycling or serviceability.

    I think redraw needs to be used in many cases. But I would suggest you store your cash in the offset until you want to invest, then split the loan, pay it down and redraw.
     
  8. TSK

    TSK Well-Known Member

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    Best of both worlds maybe be option. But like you said, get advice.
     
  9. TSK

    TSK Well-Known Member

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    This is great approach.
     
  10. Marg4000

    Marg4000 Well-Known Member

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    Offset or pay down PPOR debt will make no difference to interest paid.

    The big difference is - who owns the money?

    Offset = you. Do with it as you please.

    Repay = bank owns the money. They may lend it back to you, or maybe they won’t.

    My choice was offset every time v
    Marg
     
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  11. geoffw

    geoffw Moderator Staff Member

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    When you do get a loan for the new property, make sure it's not using security in your house directly. Use cash or equity to establish a separate loan. Such cross collaterisation can be very difficult later on, though banks love it.
     
  12. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    what is the long term view for the current property ?

    will this be your " forever home" or will it be an IP at some point and you will upgrade ?

    ta
    rolf
     
  13. TSK

    TSK Well-Known Member

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    This is a great question...forever can be a surprisingly short period of time.
     
  14. Terry_w

    Terry_w Broker, Lawyer, Tax advisor, Debt Recycle advisor Business Member

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    The next question would even if you did intend to upgrade could you afford to keep the house and rent it out.?
     
  15. Marg4000

    Marg4000 Well-Known Member

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    I hate the term “forever house” and have seen too many caught out by thinking they would live in a home “forever”.

    Latest is friends who have been in their new home less than two years. They built using an architect and went against all advice to make 4 bedrooms on the grounds that they had no intention of selling so would please themselves. As often happens, life interfered in the way of health and location issues, so they now have to sell. However, despite all the bells and whistles and very high spec inclusions, the fact that there are 3 bedrooms, not 4, has come back to bite them.
    Marg
     
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