Offset put in IO loan or PI loan

a maths question
I have 80K to park in an offset. One loan is at 4.2% PI and another is 4.65% IO. Both are investment loans. Which loan should I put the offset funds against ?
I would save more with the higher % loan but would it be worth putting it in the PI loan to help pay off the principal faster ?

 

Different cash flow out comes too.

 

thanks for comments
I don't have any nondeductible debt at the moment.
Will probably have some in about a year's time (plan to move into an IP). With that in mind, I would like to keep as much cash on hand as possible

 

thanks rolf, that makes sense for the current situation

I was thinking ahead to when the IO period is over and both become PI, at some stage I will start paying the P down for both, and whether its better to start doing that with the current PI loan first.

 

+1 on Rolf’s reply.

You just added more variables to the query, though.

When will the IO end?

To which of the IPs will you be moving to? When?

You could get bogged down in the scenarios but ultimately you could always change your mind and move the funds from one offset to another, right? So you could do what’s best for you now and change later as you go (plans tend to change, things tend to get delayed etc)

 

Your offset funds earn a greater return if its offsetting a higher interest rate account, so it generally makes sense to put it in there. This will improve your cash flow too as your repayments will fall when offsetting an IO loan. If you don't want your repayment to fall, use the interest savings from the offset to pay down debt (some of the less functional lender offset accounts do this automatically).

 

Hey guys (all knowledgeable brokers), I have a query similar to this also if that is ok to ask for some help.

Currently I have about $50-$60K to put into an offset against one of my loans.

Loan 1 - $240K IO @3.94%
Loan 2 - $270K P&I @ 4%

I would usually just put the offset in the IO account to reduce repayments (ie. cash flow). But, as this loan is fixed I only have the offset linked available for 40% of it (whereas the P&I is 100% offset). I cannot seem to work out which account I would be saving more interest in as the amount of interest saved by the offset against the P&I loan is confusing me... Argh.

 

Great thanks Rolf! No unfortunately no tax ded debt - I do have a car loan of about 25K remaining though so wondering if just to pay that off as well as it is at over 6% interest for another 2.5 years to go. But I kind of want to keep the cash for now... Hmm haha.

 

I just love cake though! No, thank you - I completely understand. I'll have a look at some numbers. Just back to the offset against the P&I or IO. I am also wondering, what methods are there to actually reduce the Principal & Interest repayment per month? I understand having money in the offset will reduce the interest component, increasing the repayment of the principal component thus ending the life of the loan earlier.. But the monthly amounts are still fixed correct? What if I simply just wanted lower repayments based on the amount I have in the offset account ($50K - $100K)? Instead of paying more of the principal amount down? I hope this makes sense..