I've been reading Terry's tax tips and trying to wrap my head around the suggested idea of a home loan with multiple splits and linked offsets (and CBA's wealth package appears to offer this) Let's say I borrow $1 mil at home loan rates and split as 1. 200k as PPR 2. 800k as investment I only want to draw down 300k for investment purposes initially, and from what I can gather, the loan structure will look like this: Loan 1 - 200k debt - linked offset (all income goes in here to reduce interest payments) Loan 2 - 300k debt - linked offset (surplus 500k goes in here) Does this mean that offset 2 is not an offset in the traditional sense ? As the 500k in there is more than the 300k debt ??
You're looking at it wrong. If you have an 800k loan with an attached offset, and you spend 300k and have 500k in the offset, then the actual loan will show MINUS 800k. So the 500k will offset the 800k debt.
I have never recommended structuring like this - in fact I actually suggest avoid borrowing money and parking it in an offset account. See tax tip 1.
Ok thanks Mikey and Terry I think I understand a bit more now. CBAs product seems less useful. The other refinance offer I've had is Loan 1. $200k at PPR rates with attached offset Loan 2. $800k line of credit (can be split into several sub loans) at 0.24% more (with everything secured against the PPR) My existing investment loan is only 300k, and I was thinking of having 2 LOC splits - one for the existing investment debt and one for future (e.g. Shares) Does this sound sensible ? I hope I'm not misquoting you again Terry, but would the alternative be to divide the $200k PPR loan into e.g. 4x$50k splits, and then when the first one is paid off, redraw and use that to invest (?recycling) etc ?
If you use a lender like Westpac you can avoid the LOC rates as their product will allow you to draw in and out. They're good for cash out too.
Yes that sounds better. Just enquire with the lender how you can change the LOC to a term IO loan once it has been used.
