To Offset or Not. What are the options?

Hi all, Looking to refinance & scenario is as follows:

Property is a house in Merrylands Sydney. Purchase a few years ago for 447k:

• Current Loan = $409k
• Current Value = $750k (bank valuation)
• Existing loan is with BW, variable rate with Offset.

Note: Looking to purchase another IP but to also build a GF on the existing property. New IP purchase within 3 months and the GF build within the next 12 months.

Current BW GF policies are terrible, hence the refinancing. (Tip for young players - should have been more specific with original broker re GF plans so he would not have suggested BW in the first place)

Refinancing:
Not sure who to get new loan with but options are as follows for refinancing:

1. Variable loan with split.
   • 1 to take over existing mortgage = $409k
   • 1 for the equity amount available based on the new banks val + Servicing ability = $120k
   • No offset available on this product
2. Variable loan with Offset
   • Existing mortgage = $409k
   • Offset for equity amount $120k + all other cash available.
3. Any other suggested options?

Questions for the brokers:

factors:

• Self employed so lots of income coming in that could potentially be moved\stored into an offset. This would include GST, Super and Tax that I have to set aside every quarter.
• I could also pay personal wages into an offset and these would be used for savings plus everyday expenses.

1. Does such an option exist to set up 2 separate offsets on a single mortgage so I could have one for equity + Personal Income\Expenses and the other for business cash to help avoid contaminating the IP offset.
2. If multiple Offsets on a single loan exists, what is the recommended allocation of money to avoid contaminating the IP loan with personal\business? Or, is it not worth setting up?
3. Which option would you choose given the above factors. Offset or Split?

Thanks in advance, I hope this makes sense?

 

1. You should not set up an offset account for equity. Otherwise you could lose deductibility of interest. Tax Tip 1: Parking borrowed money in an offset account

2. yes

3. Whether you should have an offset or not will depend on the rate of the loans and how much cash you will have available.

BTW - get tax advice if you are considering putting company money in your offset account.

 

Hi there,

Depending on the lender you can usually have lots of offsets - CBA will let you have them for free, ANZ will charge after the first one. Just depends on the lender you go with.

You'll want separate offsets for equity, personal and business - keep everything completely separate.

And as Terry said ,make sure putting company funds in your personal offset isn't going to cause any issues.

 

Hi Rolf - I was under impression that the concept of debt recycling works best if you have PPOR debt. We only have the IP and no PPOR.

 

Ok thanks all for the replies.

Is there a product where I could have 2 splits, 1 for mortgage amount, 1 for equity and then set up 2 offsets, 1 personal and one business?

Any links to the "global limit" product Rolf mentioned?
Is the "which product" a reference to "which bank" adverts?

Thanks again.

 

Thanks Terry,

As an alternative, would it be kosher to get a loan that has a LOC or Equity split to park the funds borrowed against the equity and then have a separate offset account with all personal income (including rent from the IP) going into the offset?

Assuming the above is All good, I could then decouple the issue of putting business funds into an offset against this loan by seeking tax advice on the subject and, if it was advised that this would be OK, could then apply to create another offset used to deposit business funds.

Cheers

 

Use of a LOC or separate loan is preferred over the parking in the offset. Use the offset for cash and income holding.