Hi All,
Just wondering if anyone can give me a few pointers about an offset account. I know roughly what it is but I am not sure if it is worth while setting one up or not.
We have a mortgage on our PPOR (property worth $420K and we currently owe $350K) and are hoping to buy an investment property in the next year or so (depending on available equity/savings that we can accumulate).
We dont currently have any savings but are in the position now to start adding about an extra $1000 per month to our mortgage.
I am just wondering if we would be better off paying that extra money into our home loan to try and get the principal down so that we can use the equity that we create to buy an IP or if we should put that money into an offset account and then draw the funds out of the offset account as a deposit for our first IP? Would it make much difference either way?
Any advice would be greatly appreciated.
Thanks in advance.
Putting the money in the offset account would give you more flexibility. You should put the money into an offset account because if you have a situation where you need access to the money (e.g. new car, medical emergency) then you can withdraw the money without any tax implaications. Whereas if you pay it into your loan, the redraw is counted as new borrowings and so you may have issues down the track if your PPOR becomes an investment.
Of course when it comes time to purchase the new IP you can just withdraw the funds from the offset, pay it into your PPOR loan and then set up a loan split and redraw the funds to maximise tax deductions.
Cheers,
LukeHi Dreaming Big
What are your longer term plans for your PPOR? Do you ever anticipate it turning into an IP at some point?
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
Open the offset account asap. It provides the best flexibility.
It does provide flexibility but if Dreaming Big is looking to tap into equity in his PPOR to use it towards an IP purchase, it might not be best to use the funds from the offset (because it won't be deductible).
If he/she thinks that their current PPOR might become an IP one day. Then it should be set-up as interest only with an offset now (I don't know if this is their intention – just a general statement).
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
True Jamie. But at least with the offset there he could always pump the money in the offset into the mortgage if it was never going to become an investment property, and then redraw it out later.
Yes I agree with AaronC- you never know what you are going to do in the future.
At least by putting all of your money if an offset you have options- you can move money from an offset account into your loan to usea as redraw without any tax consequences but you cant simply move money from redraw into an offset account.
This comes up so often on this forum- accountants and mortgage brokers must be tearing their hair out.
Cheers,
LukeHey Mate,
There is absolutely no benefit in having an offset account if its your PPOR. You should be able to have a redraw facility on your home loan which is pretty much the same thing.
The only benefit of an offset account is for investment properties as this offsets the interest you pay on your home loan and still gives you a tax break from your property if its negatively geared.
Not blowing my own trumpet but I deal with these accounts and open them up for clients on a daily basis.
Having said that having an offset account on your PPOR won’t hurt you but there is no real benefit.
Josef wrote:Hey Mate, There is absolutely no benefit in having an offset account if its your PPOR. You should be able to have a redraw facility on your home loan which is pretty much the same thing. The only benefit of an offset account is for investment properties as this offsets the interest you pay on your home loan and still gives you a tax break from your property if its negatively geared. Not blowing my own trumpet but I deal with these accounts and open them up for clients on a daily basis. Having said that having an offset account on your PPOR won't hurt you but there is no real benefit.I think your trumpet needs tuning!
Think about this logically.
What if the person were to use extra funds to pay down their home loan and then decide to move out and rent it and to buy a new PPOR?
There would be a huge tax disadvantage.
Also, where is the person supposed to keep their spare cash? in an offset on an investment? this would save them interest which would be deductible and thereby cost them more in tax. Best to have the offset on the non-deductible debt.
For what its worth, I would suggest the OP get an offset and pay all spare cash into it. Ideally then borrow against the PPOR and set up a different split to use a deposit for the investment. If there is not enough equity then maybe have to pay down the PPOR loan a bit.
Having the offset makes it more flexible.
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
Josef wrote:Hey Mate, There is absolutely no benefit in having an offset account if its your PPOR. You should be able to have a redraw facility on your home loan which is pretty much the same thing. The only benefit of an offset account is for investment properties as this offsets the interest you pay on your home loan and still gives you a tax break from your property if its negatively geared. Not blowing my own trumpet but I deal with these accounts and open them up for clients on a daily basis. Having said that having an offset account on your PPOR won't hurt you but there is no real benefit.O my, I am glad that you haven't given me advice then!
Josef i will put that comment down to your maiden post.
Please let me know for which lender you open these accounts for and I will make sure i never refer clients that way.
Advice like that makes our job so much easier.
As it is i spend most of my working day untangling the mess bankers and brokers cause clients with comments like that.
Let us hope if you come back for a second post it is slightly more accurate and with a bit more thought.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Josef wrote:Hey Mate, There is absolutely no benefit in having an offset account if its your PPOR. You should be able to have a redraw facility on your home loan which is pretty much the same thing. The only benefit of an offset account is for investment properties as this offsets the interest you pay on your home loan and still gives you a tax break from your property if its negatively geared. Not blowing my own trumpet but I deal with these accounts and open them up for clients on a daily basis. Having said that having an offset account on your PPOR won't hurt you but there is no real benefit.….and that folks is why you should use a broker over a banker!
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
Poor Josef
His first post too. Bet he won't be back – or back under that name at least.
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 for all your comments. I really do appreciate it!
Jamie, we do plan on turning our PPOR into an IP eventually and we also plan to be very active in the propery investing area and not just buy one or two but more like ten or twenty (depending on how many we need to get where we want to be).
I understand that how you start and how you first set everything up is really important and can save you a lot of money. I'm just trying to be as prepared as possible before we jump in and buy something.
I posted a bit of an explanation as to why use an offset account in this thread;
https://www.propertyinvesting.com/forums/property-investing/help-needed/4343894?#comment-258117Hope it helps….
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
Dreaming Big wrote:Jamie, we do plan on turning our PPOR into an IP eventually and we also plan to be very active in the propery investing areaIn this case there is no question – offset.account will serve you best in the long run.
Dreaming Big wrote:Thanks for all your comments. I really do appreciate it!Jamie, we do plan on turning our PPOR into an IP eventually and we also plan to be very active in the propery investing area and not just buy one or two but more like ten or twenty (depending on how many we need to get where we want to be).
I understand that how you start and how you first set everything up is really important and can save you a lot of money. I'm just trying to be as prepared as possible before we jump in and buy something.
Here's an article I wrote for API magazine on this topic – hopefully it helps.
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
Jamie M wrote:Dreaming Big wrote:Thanks for all your comments. I really do appreciate it!Jamie, we do plan on turning our PPOR into an IP eventually and we also plan to be very active in the propery investing area and not just buy one or two but more like ten or twenty (depending on how many we need to get where we want to be).
I understand that how you start and how you first set everything up is really important and can save you a lot of money. I'm just trying to be as prepared as possible before we jump in and buy something.
Here's an article I wrote for API magazine on this topic – hopefully it helps.
Cheers
Jamie
Thanks for posting that link Jamie, i just went and saw a broker today about refinancing my IP today and that is just how I’m setting it up. Interest only with an offset account. That article reassured me that my understanding of the Interest only loan with the offset account is correct and that i didn’t dot the wrong thing.
No worries at all – I'm glad you found it useful.
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
Jamie M wrote:It does provide flexibility but if Dreaming Big is looking to tap into equity in his PPOR to use it towards an IP purchase, it might not be best to use the funds from the offset (because it won't be deductible).If he/she thinks that their current PPOR might become an IP one day. Then it should be set-up as interest only with an offset now (I don't know if this is their intention – just a general statement).
Cheers
Jamie
Now I’m confused !!
Jamie – you mentioned that using funds from offset is not deductible & from the forum, it sounds like I need to move it into the loan before using it for investment purposes (eg. deposit for an IP or renovation cost for an IP). What happens if I have an offset account which I’ve withdrawn funds for renovating an IP directly without moving the funds into the loan & then withdrew it from the loan itself … does that mean this amount withdrawn is not deductible?Apologies if I’m not asking the right question but your statement has got me a little confused. Appreciate some insights to this matter.
Regards,
NM7
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