Hi everyone,
I have been reading far and wide throughout this forum and others and have already gained much valuable information. I have a question regarding my account structure for my loan. My situation is as follows:I have just bought my first and only property, as an investment property, and still rent with friends as I have a great deal.
My loan has a guarantor, my mum (please don’t tell me how bad it is to have a guarantor on an IP, I’ve read all about it!)
The loan has been split with $69k being variable and the remaining $225k fixed for two years.
My broker has split it this way as the 69k is the amount guarantored, and has recommended I pay this down asap to release the guarantor. I agree.My question is, is the offset account the best way to go for this, or in general is an offset account best for IP’s? I’ve read how great they are for PPOR and then purchasing IP’s, but generally was wondering if my situation is still beneficial. Should I then be dumping my entire salary, rent etc into the offset and living off the credit cards?
I’m looking to purchase more IP’s and a PPOR in the future and after 2 years will hopefully have released the guarantor and ready to keep moving forward.
Any feedback would be great
Ryan
Generally you shouldn't pay down an investment loan as you will be tying up your money and it won't be tax effective if you need the money for personal expenses. But you also want to release your mum from the shakles of being your guarantor – the only way to do this is to gain equity and there are 2 ways to do this – capital growth and/or reduction in loan.
If you were disciplined you could use a 100% offset account and save up the money in that. When you reach $69k you can consider whether to pay it off the loan or not. This will save the same interest, but keep things flexibile.
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
Thanks Terryw, that is what I was thinking the best plan would be.
So if in two years time the property were to increase $35k (hopeful!!) and I could contribute $35k of my own into the offset, the guarantor would be released?
My plan then would be to not pay off the loan, but look at buying another property. I'm disciplined with my spending, so am confident the offset will work for me. The offset account in question isn't fully transactional, and I quizzed the lady at the bank if it were still worth keeping a high interest saver account opened, or just contribute everything to the offset? She wasn't very helpful, but at the same time, I'm not sure what I wanted to hear!!I understand the basics of IP's, being claiming interest on tax, but feel as though I have no choice in paying down the loan amount via offset asap to release the guarantor, thus reducing my interest and possible tax gains. But I'm hoping short term loss will help provide a pathway to long term gain.
You would hve to apply to have the guarantor released.
And, if go for a new property then you can pay LMI so you won't need a new guarantor.
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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