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Where to place a offset ?

Discussion in 'Property Finance' started by Set81, 17th Aug, 2016.

  1. Set81

    Set81 Active Member Premium Member

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    hello need some thoughts again

    I was speaking with my bank manager today and asking him to set me up a offset account, he said where would you like it , I said against my biggest loan which is $440k on fixed 4.69% interest , he said you know that it will reduce the interest you pay and you won't be able claim as much on tax , he said I have a personal loan of $10k at 10% interest and I should put the offset there because it's a non deductible loan , I'm paying the personal loan off at about a monthly payment each week .
    Out of the offset I will be paying all bills and sitting all funds in there from rents till payments are due for all purposes .
    Does my plan sound right or does the bank managers ( I know he has double figures in IPs and no offsets )

    Thanks
    Sean
     
  2. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    This whole conversation seems very, very strange to me.

    I don't generally work with personal loans, but I'm yet to hear about a lender offering a personal loan with an offset account.

    Most lenders don't offer offset accounts on fixed loans. With the few that do, most of them only use a percentage of the funds in the offset account (usually about 30%) which makes them ineffective.

    Again, very strange. Which lender are you with?

    Generally you'd have a variable loan to put an offset account against. Ideally that loan would be one that's non-deductable. If you don't have any eligible non-deductible debt, then a tax-deductable loan is fine. Your tax return won't be as large, but your interest saving will be significantly more than the tax deduction you'd miss.
     
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  3. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Strange as perdonal loans dont usually come with offsets and the bank manager is giving tax advice.

    But he is right you should get the offset on the loan that is not deductible and the loan with the highest rate.
     
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  4. Set81

    Set81 Active Member Premium Member

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    Hi
    I'm with Select Credit Union , I don't have PPOR I rent at the moment .
     
  5. Set81

    Set81 Active Member Premium Member

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    I have cash in another account that would cover the personal loan but was keeping it for emergencies because I am paying down the personal loan fairly quickly anyway
     
  6. albanga

    albanga Well-Known Member

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    I think it is just miscommunication. The bank manager is likely suggesting that instead of parking money in the offset against your deductible IP that you pay off the loan.

    I Agree with him to an extent. Just be sure you leave enough for a buffer.
     
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  7. Username86

    Username86 Well-Known Member

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    Maybe the personal loan has redraw?
     
  8. Set81

    Set81 Active Member Premium Member

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    It does have redraw
     
  9. Colin Rice

    Colin Rice Mortgage Broker Australia Wide Business Member

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    Maybe the "personal loan" is secured against property as a sub account?

    Only a few lenders allow partial or full offsets to fixed loans!

    Often these things are lost in various descriptions that mean something else to one person and another to some one else!
     
  10. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    That potentially adds up. Some of the credit unions do offer an offset account on fixed loans that is workable, most lenders don't however. If I've got the right website though, their fixed loan doesn't appear to have an offset account.

    It's also likely that the lender was suggesting extra payments on the car loan rather than an offset account. Without the benefits of the bigger picture, that's usually good advice.

    It's usually worthwhile having an offset account just to drop your salary into, even if you then move the money to pay off the personal loan. $1k in the offset account, even for a day or two will reduce your interest bill (not by much, but it still does save money).
     
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  11. Username86

    Username86 Well-Known Member

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    My guess is that's what the manager was referring to, pay down the loan and redraw it as you need it. I'm not an accountant but that is what I would do until I could afford to close it for good.
     
  12. Set81

    Set81 Active Member Premium Member

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    The personal loan is a car loan against the car , it has $5k redraw available now with $10k owing , I thought I'm getting that personal loan down pretty fast anyway that the offset against the property was best as I have $40k to put in it straight away
     
  13. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    If it was me, I'd pay off the car loan and put the rest into an offset account. Even a small personal loan will get in the way of an investment strategy. For the sake of giving up $10k, it's worth getting rid of it.
     
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  14. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    If that is the case why hadnt you paid it down to save interest? Depending on your tax rate this could be lie getting a 15% return
     
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  15. Set81

    Set81 Active Member Premium Member

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    Do you mean to sit cash in there to lower it to say $1 still being able to use the redraw in emergencies
     
  16. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Yep
     
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  17. Set81

    Set81 Active Member Premium Member

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    I for some reason was scared to see the lump sum drop by $10k , but it does now sound best for the long term now it's mentioned thanks
     
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  18. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    $10,000 x 10% is $1000 per year so it does make sense to pay it down. You may need to earn $1500 to $2000 to be left with $1000 to pay this interest.
     
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  19. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    Best part is if you pay the personal loan down but later need to redraw the money for further investment, guess what? The interest on the personal loan may now be tax deductible!
     
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  20. Set81

    Set81 Active Member Premium Member

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    On my latest purchase , I lent about $36K on top of the loan to pay a buyers agent and some little fix ups around the place , but they put that into a billing account I had before the offset , there will still be around $10-20K left over after I pay for those services should I put in the offset or back directly on the latest loan it was borrowed with , ( I paid $10K deposit out of cash and know I can't repay myself )
    I did ask in another thread but didn't have a offset at the time and the advice was back on the loan it came from
     
    Last edited: 17th Aug, 2016