Hi Daniel

I don't know anything of Onedirect – I suspect they are mortgage managers so they may not offer offset accounts. But even if they do, you would still be better off in the long run by having a second split – after paying down the loan.

eg. Say you have a loan of $200,000 with $50,000 in the offset. You then buy an IP and use $50,000 as a deposit. So, you are only paying interest on $150,000 and this is not deductible.

Scenario A
You take the $50,000 deposit from the offset.
You are now paying interest on $200,000 on your home. None of this is deductible.

Scenario B
You pay $50,000 into your loan and use redraw.
You are paying interest on $200,000, with the interest on the $50,000 withdraw for the investment being deductible and the interest on $150,000 not deductible.

Scenario C
You pay $50,000 into your home loan and then request the lender to make available a LOC or separate loan for the $50,000.
You are paying interest on $200,000, with the interest on the $50,000 withdraw for the investment being deductible and the interest on $150,000 not deductible.

Scenario C is better than B because with B every repayment must be apportioned between the investment and the home loan. The investment loan is 25% of the whole loan, so if  you made a extra repayment of $1000 then $250 of this must come off of the investment loan and $750 off the home loan.
This is not ideal as you are reducing your tax deductions and making slower progess on reducing the non-deductible debt.

A better way would be option C, then you can keep the $50,000 split interest only and concentrate on paying off the home loan portion first – saving  you thousands in non-deductible interest..

I was just reading that the futures markets are anticipating more cuts to rates, so maybe don't fix in yet.

Beware with the redraw – make sure you get a separate slit set up or you will be suffering at tax time and you will end up paying more tax than necessary.

Lenders will consider rental income from the future purchase.
You might want to consider putting your cash into your home loan and reborrowing to save some tax.
Westpac is allegedly bring out a 1,2,3 year fixed rate of 4.99% on monday, so that could help with lowering repayments – but variable rates could fall still further. Westpac and other major lenders will take into account negative gearing savings in calculating serviceability.

There are a few downsides as well, such as:

– could possibly drop in value
– could drag out and be completed much later than expected
– you could lose your job or have trouble coming up with finance at settlement. Especially in this climate, rules for lending are tightening up all the time.
– there is an opportunity cost as you may not want to do other deals in the meantime while waiting for this one, and you may miss out on potential profits.

Haven't checked lately, but RHG didn't offer any offset accounts the last time I asked – I was told by one of their staff that the redraw facility works just the same and this is simply not the case!

Generally cannot get an offset on fixed loans either.

Trusts can negative gear – losses from an investment property can be offset by other trust income, but you cannot offset personal income. This shouldn't be a problem with being self employed.

I would urge you not to buy in the same entity as your business. If you do, then you will be exposing the house to creditors if your business fails. Set up a new trust – there is no stamp duty on trusts in QLD so it will be pretty cheap. Your business can then distribute income to the new trust to offset any losses.

There is also no guarantee that the FHOG and stamp duty exemptions will still be around in 5 years – though I can't see it getting any easier for FH buyers.

Buy whatever you think will grow the fastest.

I would get an IO loan if you have other non-deductible debt as you would want to decrease this first.

If no other bad debt, personally I would still get an IO loan, but it depends on your risk level. You may want to pay off a portion of this one before embarking on the next if you are conservative. Look at using a 100% offset account instead of paying off the loan.

If you have a 100% offset account you can save interest by keeping money in this account. Each day your money is in there, the more you save. The idea is to use the credit card with an interest free period so that the money you would have used to pay for groceries etc stays in the account longer saving you interest. You then pay the credit card off in a lump sum at the end of the month before you will accrue interest. If you save interest in one month, then the next month you will be saving interest on interest, with the effect increasing over time.

But, you must be disciplined. If you forget to, or cannot, pay off the amount owing on the credit card in full, then you will be charged much higher interest.

You can also get points and bonuses with some credit cards. I use Westpac's Altitude card and get Myer gift cards with my points.

If you have a few investment properties you can save a fair bit and get heaps of points too by paying for rates, insurances etc (don't let the agents pay them on your behalf).