Please advise differences/advantages/disadvantages between a true line of credit and a normal interest only loan that can be drawn up the original loan limit.
Brief explanations will suffice.
Thanks.A normal interest-only loan has a fixed amount, say $100K, and the $100K is all paid out when the loan is settled. Interest is payable on the full $100K, whether you've spent it or not.
A line of credit is more like a credit card with a $100K limit. If you don't use any of it, you don't pay any interest. You can take out $50K, then repay it, and draw it down again. Interest is payable on however much you've drawn out at the time.
If you had an interest-only loan with a 100% offset account, you could effectively draw down the $100K and put it in the offset, and operate in the same way as if it were a line of credit. The difference is you'd have two accounts (one fully drawn $100K loan and a varying amount of that $100K on deposit in the offset account) rather than a single account.
For tax purposes would one be preferable over the other?
Seems more lenders provide LOC than I/O + 100% offset.
Yes for Tax purposes undoubtedbly IO + 100% offset,
Richard Taylor | Australia's leading private lender
The main difference with a IO loan and a LOC is that with a LOC you would be able to withdraw excess funds easier, maybe without fees and with a cheque book. Offset accounts are not available on LOCs.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
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