Offset Account - Which Loan?

Discussion in 'Loans & Mortgage Brokers' started by PerthNoob, 12th May, 2019.

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  1. PerthNoob

    PerthNoob Member

    Joined:
    27th Jul, 2015
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    AU
    Hi Team,

    Just wanted some input regarding this situation:

    - No PPOR, 2 IPs

    - IP 1 just reverted to P&I (after 5 years of IO) 400k at 4%
    - IP 2 has another 5 years of IO 450k at 5%

    Which IP loan should the offset be against?

    I think putting the offset against IP2 (IO) will be better cashflow wise because offsetting a P&I loan will not change the repayment amount (only reduces the loan term by paying off greater principle amount). Is this correct?

    What would be the downside to offsetting the IO loan (IP2) versus the P&I loan (IP1)?

    Many thanks!!
     
    PerthNoob, 12th May, 2019
    #1
  2. Terry_w

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

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    It depends
    a) do you want to save interest, or
    b) do you want to improve cash flow?
     
    Terry_w, 12th May, 2019
    #2
  3. Jamie Moore

    Jamie Moore MORTGAGE BROKER - AUSTRALIA WIDE Business Member

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    IP 2 - has a higher rate as well.

    Cheers

    Jamie
     
    Jamie Moore, 13th May, 2019
    #3
  4. Terry_w

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

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    Australia wide
    good point Jamie - offset on IP2 would give you both interest savings and cash flow savings.

    However, if there was a chance you might move into IP1 it might be better to pay this off quicker.
     
    Terry_w, 13th May, 2019
    #4
  5. Jess Peletier

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

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    Perth WA + Buderim Qld
    Either way, the IO loan would be best...
     
    Jess Peletier, 13th May, 2019
    #5
    Terry_w likes this.