Coverting existing PPoR loan to IO with an offset account to save for an investment property

1. Yep, if you want to increase cashflow then setting up an offset is the way to go. Basic benefits of offset acount – the amount of cash you have in your offset account will reduce your loan by that amount (the lower the loan amount, the less interest you pay). When you take this money out of your offset account, your loan will obviously increase. Offset accounts put you in control of your money – unlike a P&I loan, when you drive down some principle and want to access some of the equity, you need to refinance. With an offset, you can access the funds as you please. This is a simplistic explanation.

2. Yep, top-up this loan. Set up a second loan (or LOC) that will be used only for investment purposes. Depending on your current lender, you might be able to top-up to 90% of your properties value. You can this use these funds as a deposit towards your investment property. This way, you avoid cross collaterising your properties and it will make future property accumulation much easier.

Cheers,

Jamie

Hi Batgirl

Welcome to the forum.

If you’re keen to buy an IP, you might be able to access some equity in your current PPOR.

If it’s valued at $460k and your lender allows you to increase your loan to 90% LVR – you should have just around $30k to go towards a deposit and purchasing costs on an IP.

Cheers

Jamie

Hi batgirl

If you think the val was low you could have another one carried out – perhaps through a different lender which may yield a better result.

The option of moving out to rent elsewhere in an effort to save $4k a year, to me, seems a little painful. Have you factored in all the expenses with renting out the property? Rates, insurance, PM fees (if applicable), the list goes on.

What if an expensive unexpected requirement for maintenance occurs and you have to fork out some cash? What if the property has a vacant period? These factors could quickly erode that additional $4k.

Converting to IO isn’t a bad option – especially if it’s helping with cashflow.

Cheers

Jamie

Do you know of a lender who can give us a better yield (valuation)?

Actually, I already converted the variable portion into IO 2 wks ago. Need to wait until the 10/06/11 (Fixed loan expiry) before I can convert the Fixed loan (the bigger loan) to IO. I considered converting to IO as we are thinking of renting out our home and thus turning it into IP.  But if we stay and pay IO, that seems kinda odd as we are supposed to pay down our mortgage which is a non deductible  debt, right? Can you pls clarify as this is something new to me and seems outside the norm.

Hi Batgirl

As Richard mentioned above, it’s not the lender that carried out the valuation but rather a company on their panel of valuers.

My thought was that, depending on the size of the town, you may have a chance with using a different lender (who possibly has different valuers on their panel). Therefore, the valuation might be carried out by a different valuer – and could possibly provide a different (hopefully a better) result than the other valuation.

In any case, this option wouldn’t be viable until that fixed loan period has expired (the break fees will be too high).

Cheers

Jamie

You sholdn't be using savings for the investment  – or you will be paying more tax. I would suggest you also leave any money in redraw as taking it out will be new borrowings and you will have even more tax problems later on.