Hi 8

Well, its not entirely his fault. He rang up the bank he was already with to make some general enquiries and they ask his name etc to just pull up his details. They then issue a number so that if they did later try to go to a broker the bank will say they were approached first.

To that I would ask:
– do you think these would be good investments>?
– Do you think there will be growth in values?
– allowing for 10% deposit and 4% costs could you even afford one?
– Did you realise that there may be higher deposit requirements for some regional areas?
– Did you factor in extended vacanies and cost of repairs – what happens if the hotwater system needs replacing?

Having said this there are some bargins out there.

Why sell at all? – maybe for tax reasons?

I would suggest you sit down with some paper or a spreadsheet and work out the financial position of all scenarios. Then factor in the non financial considerations and then decide.

I think the exit fees are only part of the reason. I think there was a rate increase and then many wanted to get out – but were stuck with the fees. There are a few threads on this forum re this.

I haven't looked at the new legislation, but would doubt that there would be anything to prevent rate increases.

It could be a significant savings, but you are assuming:
– rates remain the same
– your loan runs full term

What if you:
– want an offset account
– want an increase
– want to fix down the track
– exit after x years
– refinance after x years because they cannot lend you any more

My answers, not having read the above answers.

1. Yes, interest will be charge as soon as you use the money.

2. Rent should be paid into your 100% offset account attached to your home loan, ideally. From there you can direct debit it. You cannot rely on the rent to pay the interest as it will vary each month, and sometimes will be late.

3. There are tax implications to this, but ideally you could borrow from the loc to pay the shortfall – talk to your tax advisor

4. No. A LOC is not an offset and putting extra money in there, even temporarily, will result in tax issues if you ever need access to that money. It would also make more sense to place any money into an offset account against you home loan instead as this will save you deductible interest.

Actually there is a requirement for beneficiaries to be determined with certainty and it can't be too broad. I recall hearing one story that someone tried stapling the white pages to his trust deed and have everyone listed as a beneficairy – but this didn't work.

Hi Andrew

I am not entirely sure of the full features – but it appears from what is written above that they don't allow direct debits and have minimum balance requirements etc.

On the deductibility issue see
TR 2000/2 Income tax: deductibility of interest on moneys drawn down under line of credit facilities and redraw facilities
http://law.ato.gov.au/atolaw/view.htm?docid=TXR/TR20002/NAT/ATO/00001

But if you moved out it would be too late. Your whole loan may be undeductible.

When you originally borrowed the money it would have been used to purchase the house, but as you put money into the loan this is a repayment. When you take money out this is new borrowings. So the original borrowings used for the house purchase may be rapidly reduced to nil, and the new borrowings for personal expenses may be increasing, so the net effect is a high loan balance with hardly any of it attributable to the house and therefore not deductible. All this could be avoidable if using an IO loan with offset.