Need some clarification with my loan structure

Hi Kat

Generally speaking (and I don't have a clue about what your situation looks like), you'd roll the IO period over for another term of 5 or so years. For some lenders, it's a form you need to complete – for others, it's a new application.

Cheers

Jamie

Don't use a redraw loan as this is totally different to an offset and you will be worse off in the long run.

IO loans eventually change to PI so if you keep the loan for 30 years it will be paid off. But the main reason not to use PI on an investment loan is that you will be paying down deductible debt. It may be ok once you have paid off your non deductible home loan, but if you are paying PI on an investment this will lead to your wasting money by paying more tax.

eg.

$100,000 investment loan.
$1000 cash.

You could
1. Park the cash in the loan or
2. Park the cash in the offset

Interest result would be exactly the same

BUT

When you put money into a loan this is a repayment, and
When you take money out of a loan this is a new loan

So with 1, you put $1000 into a loan of $100,000 and the balance becomes $99,000.
If you take $1000 out of the loan to buy a new ivory back scatcher the loan will now be 99% investment related and 1% personal related.

Only 99% of the interest will be deductible.

If you were to do that the next month then the deductible portion will be $99,000 – ($1000 x 99%) = $98,001

You can imagine that after 10 years or so you could have a $100,000 loan still, assuming IO, but with a deductible balance of maybe $50,000.

Whereas if you had used an IO loan with a 100% offset then you would have a $100,000 loan with all of it deductible.

Mr Burns maybe?

Terry, are you based in Victoria? I would honestly pay top dollar for your advice. You make it really easy to understand, even my dog gets it

That's a real shame. You are one of a few people that can actually explain a concept without causing a headache. Looks like i will need to look up to Boris for answers.

Thanks for your comments. I have been explaining these things so long now I know what is easily digestible.

I must say there are thousands of consumers out there who have it all wrong and will be in serious trouble if audited. Most accountants have no idea. same with the brokers and even the lawyers.

I know one lawyer that transfers borrowed money to a savings account to pay for investment expenses. He didn't know this could remove the ability to claim the interest. Other lawyer friends have no idea about trusts or asset protection etc. Very few people are set up effectively.

This is a scenario I am interested in hearing more info about… if you pay off a house you are living in and then want to buy and move to another place (and rent out the existing house), wont you be in the situation of living in a house with a non-deductible debt, and owning an investment property with no debt? Any legal way to refinance to make it more tax efficient?