Offset vs. direct payment and anti-cross-collateral?

Hi There,

I've been reading through the forum for a while now and have seen a few recommendations on here that I'd just like some clarification on, as I'm looking into purchasing another IP later in the year.

1) What are the pros and cons of an offset facility as opposed to paying the loan down directly and redrawing the funds when required? There seems to be some sentiment against direct payment, but why?

2) I've also seen some sentiment against cross-collateral loans in a couple of threads on here but with no mention of why. Can anyone tell me why this is?

I'm not trying to discredit anyone's advice (this forum seems full of good help) but I'd just like to know the reasoning behind it in order to make the right decisions for my circumstances.

Many thanks!

Hi Streaker

An offset account would only be recommended on an investment property if:

1) You have no non deductible debt on your on your PPOR.
2) The cost of the offset account makes it still worthwhile.

Reason you would not redraw funds on an PPOR is that interest on the redraw where the original purpose was to buy your own dwelling would not be deductible. You want to maximise your deductible expenses and reduce your non deductible expenses.

In regards to cross collateralising your securities the list is endless.

I wrote an article 10 years ago about the 10 reasons why you should not cross your loans. Whilst the abolishment of Mortgage stamp duty in some states one or two of the points are not relevant today with the advent of the GFC there are probably another 3 or 4 that can be added to the list.

Rather than write for pages drop me an email and i will send you over the reasons.

Already had 2 forum members approach me this week alone who had crossed their loans and then gone back to buy another IP with the same lender only be to be told "NO we cant help you, but sorry you cant do anything else because your loans are crossed".

Spend most of my time sorting out the mess caused by brokers or lenders who have crossed clients securities and this is only done either through laziness or in the case of a lender so maximise their security position and not to benefit the client.

Cheers

Yours in Finance

Richard Taylor - richard@tayloredfinancialsolutions.com.au Tel: 07 3720 1888
Residential Mortgage Broker providing structured home loan advice for investors and owner occupiers all over Australia.
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