Offset IO vs Redraw IO

Discussion in 'Investment Strategy' started by Brett1709, 15th Nov, 2019.

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  1. Brett1709

    Brett1709 Well-Known Member

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    Hi guys,
    I have 2 IP one with 315k owing valued at 370K paying 4.84% IO fixed & one with 275K owing valued at 380K paying 4.34% IO fixed . Both are due to expire July 2020. I spoke to a broker and he suggested merging the debt split over 2 loans with the same bank to avoid paying LMI again. The bank offer 2500K cash back per loan which would cover my break costs. So essentially will then have 2 loans of 295K at 3.99% Variable. First question does this sound like a good idea, to me it would save around 500 a month on interest payments and also is 3.99% a good rate for 80% LVR variable rate. Next question is would it be best to keep my savings approx 300k in an offset account on both loans. So 150K in each so I will pay interest on 145k on each loan or have the loans paid down with a redraw. The goal is to pay the loans down as quick as possible.
    Cheers
     
  2. Terry_w

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

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    You can go to different banks and still avoid LMI.

    Not enough info to answer offset question but avoid using redraw because of the tax issues
     
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  3. Brett1709

    Brett1709 Well-Known Member

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    What more info is needed about the offset mate? How do I avoid LMI on the my properties as they are over 80% lvr
     
  4. Lindsay_W

    Lindsay_W Well-Known Member

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    use some of the equity available in the property valued at $380K to pay down the loan of the other property to $296K Can do it with separate banks and keep the properties uncrossed
     
  5. Brett1709

    Brett1709 Well-Known Member

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    Ok then but then it would leave the other one above 80 LVR, why is it an issue to have 2 loans with the 1 bank?
     
  6. Lindsay_W

    Lindsay_W Well-Known Member

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    No it wouldn't
    80% of $380K = 304K
    You only need $19K from the property valued at $380K to pay down the other loan to $296K = 80% LVR (based on $370K val)
    275K + $19K = $294K = 77% LVR
     
  7. Lindsay_W

    Lindsay_W Well-Known Member

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    Is that your only goal? If so, why not clear one of the loans in full with your $300K savings?
     
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  8. Brett1709

    Brett1709 Well-Known Member

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    Because I’d like to still have access to the money. For future investments. But let the mint worn for me now enabling me to pay down the balance quicker
     
  9. Brett1709

    Brett1709 Well-Known Member

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    Ok then thanks I didn’t know you can do that
     
  10. Brett1709

    Brett1709 Well-Known Member

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    Would it be best to have 2 lenders ?
     
  11. Lindsay_W

    Lindsay_W Well-Known Member

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    Ok so there are other goals, wealth building goals.
    The $300K could be invested in another asset class, shares, ETF or Direct etc rather than just sticking it in the offset/redraw (offset always better if you want to be able to access in the future)
     
  12. Brett1709

    Brett1709 Well-Known Member

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    Yes eventually I’d like to use the money for something else. But at the moment happy to leave in an offset to pay down the property
     
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  13. Lindsay_W

    Lindsay_W Well-Known Member

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    Debatable - it only really becomes an issue if you default on one of the loans, example below;
    Property A with Bank A
    Property B with Bank B
    You default on Property A loan, Bank A can only sell that asset as it's the only security it has on its books.
    If both properties were with Bank A then Bank A could potentially sell both properties even though you've only defaulted on one of the two loans (assuming the properties are not cross secured but they are with the same lender)
    Not the best explanation but hope it makes sense.
     
  14. Terry_w

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

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  15. Brett1709

    Brett1709 Well-Known Member

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  16. Brett1709

    Brett1709 Well-Known Member

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  17. Lindsay_W

    Lindsay_W Well-Known Member

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    Terry's got a bunch of helpful articles, definitely worth reading
     
  18. Brett1709

    Brett1709 Well-Known Member

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    Ok then cheers for the feedback. Do you happen to know who is offering cash back for re finance and are competitive in rates. I saw ANZ Is 3.99 and Suncorp 3.74 for investors both 2500k cash back
     
  19. Brett1709

    Brett1709 Well-Known Member

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    As I want to cover break costs I’m 2 loans
     
  20. kierank

    kierank Well-Known Member

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    Sounds like they are suggesting you x-col :eek:.

    My tip would be to find a better MB ;).