Which option is the best ???

Hi guys,

I just purchased a house with the loan of $322,000. 10% deposit
variable rate only, no offset account but there is a redraw facility ( 25$/each redraw). Let's call this IP1

I also have another IP with fixed term with offset account. Let's call this IP2

So, here is my situation and plan.

I will do some reno on the IP1 and live in there for a year. After a year, I will revalue it and expect $440,000( it's under market value now)
Then I can tap its equity to fund another IP.

Here is my situation. I can repay $4,000 extra/month.
I have 2 options here:
1 Repay extra $4,000/month for IP1. Then after 1 year, the equity is big enough to deposit another property.
2 Repay minimum, and leave the rest of the income (4000$/month) in the offset account of IP2. After 1 year, the usable equity of IP1 is only $34,000. To deposit another property I need $80,000 (roughly), then I will pull $48,000 from the offset account of IP2 to fund it.

Which option do you guys thing would be the best?

 

How are you able to use the offset account with a fixed term? Is there a product that allows it?

If the offset account is usable, I'd just park the funds there rather than paying it in the IP1 redraw.

Always seek professional tax advice

 

Yes, it's allowed to use money in the offset account. It's my transaction account as well.
I was thinking about tax deduction as well. IP2 is now my only IP, IP1 will become my temporary home for a year (until I buy another property and move in for the same purpose). That means I can only claim tax on IP2 interest. So, Should I leave all the saving money in the offset of IP2 to reduce interest once I can claim back 37% on the interest I pay.

I know that putting more money in the offset of IP2 brings me benefit as well with IP2 as it reduce the principal of IP2 loan and when it's the time fixed term end, I will have a greater usable equity of IP2.

But ... which one makes more benefit?

 

What will you use as a deposit for the ppor, and can you actually borrow for all 4?

 

Depends on your borrowing power but in theory, it’s possible. What I use as deposit for next property is the equity of IP1.

 

If it doesn't affect Finance, go for option 2.

 

Thank you John for the advice. Can you explain little bit please.

 

welcome to PC @Ruan

there are a few lenders in the market offering fixed rate with offset, such as Adelaide Bank, AUwide, and CUA.

if it was me, I would prefer option 2, ie. keeping / saving cash as much as you can at your disposal. paying down principle then redraw (or release equity) is a bit more complex, it will depend on the lending condition at the time. more risk.

and you would have paid LMI for the first property, to make it more effective, keep the LMI, and re use it.

 

Thanks Eric, but I want to use the equity of IP1 so I don’t want fixed term. I can’t refinance IP2 because it’s still in the fixed rate. I don’t need to pay LMI for 90% LVR.

 

yes, you already paid the LMI, so use it to your advantage, but not by paying down the principle, rather by increase the value of the property through improvements, such as reno, adding rooms,