All Topics / Finance / offset higher than variable loan balance

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  • Profile photo of FrenchChineseManFrenchChineseMan
    Participant
    @frenchchineseman
    Join Date: 2012
    Post Count: 20

    Hi everyone,

    I'm writing this post to have some advices. Here is my story:

    – I've purchase a PPOR in Oct 2011 in VIC (purchase price: 500k. Mortgage with one of the big4: 400k)

    – At that time, I was unsure of my professional future and I wanted to secure the monthly mortgage repayment.

    – I decided to split my loan in fixed (200k for 2 years) + variable (200k)

    – Few months after I moved in my house with my wife, I was sent overseas for a work assignement (2 years, until late 2013)

    – I'm now renting my property and my personal cash flow is pretty good as I've been able to put aside a good amount of money in the last 12 months.

    – Today, my variable loan balance is 187k and the balance of my offset account is 182k.

    In about one month, I will offset more than I owe on the variable loan. The fixed loan will switch to variable in Oct 2013 only and I've already made the maximum early repayment on it (5k per year).

    Do you see any other solution than putting the "extra" money on an interest account until the fixed loan becomes variable and can also be offset?

    I just find it's a pity to pay interests on one side (fixed loan) and earn money from interest (interest account) on the other side, but not sure if there is anything smarter to do…

    Eric

    Profile photo of TheFinanceShopTheFinanceShop
    Participant
    @thefinanceshop
    Join Date: 2012
    Post Count: 1,271

    So the PPOR you purchased in Oct 2011 is now an IP and you have moved into another PPOR. Is that correct? If so whats the debt on the PPOR?

    Regards

    Shahin

    TheFinanceShop | Elite Property Finance
    http://www.elitepropertyfinance.com
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    Residential and Commercial Brokerage

    Profile photo of FrenchChineseManFrenchChineseMan
    Participant
    @frenchchineseman
    Join Date: 2012
    Post Count: 20

    You're right:  the property I purchased in Oct 2011 was my PPOR and is now an IP. But I'm just renting it for the duration of my work assignment overseas, so it's not a "permanent IP"…

    I plan to come back to Australia at the end of my assignment (in at least one year time) and will live again in the property. 

    So I don't have any other loan on property or credit card that would need to be paid off.

    Cheers,

    Eric

    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 12,024

    Hi Eric

    Hate to say if your lender does not offer an offset account on a fixed rate and the funds will eventually be used for a PPOR (if they would be used for investment you could possible utilise a redraw feature) there is very little you can do.

    Probably best to look at placing the funds on a Term Deposit in the name of lowest Tax payer and try and maximises your interest return between now and when you require the funds.

    Cheers

    Yours in Finance

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
    http://www.mortgagecapitalaustralia.com.au
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    100% Investment Finance now available on selected properties. Email us for further information.

    Profile photo of JPS25JPS25
    Participant
    @jps25
    Join Date: 2010
    Post Count: 121

    Hi Eric

    We had the same situation with our PPOR offset before paying it all off. We do also have an offset connected to our IP investments but as I don't earn much and the IP's are in Paul's name I have a high interest online savings account where all our access money goes. That way Paul still gets full tax deductibility on IP's but we also earn some interest too.

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,213

    Are you a resident for tax purposes?

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    https://terryw.com.au/
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    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://Terryw.com.au/

    Profile photo of FrenchChineseManFrenchChineseMan
    Participant
    @frenchchineseman
    Join Date: 2012
    Post Count: 20

    I'm living in China now and I'm not anymore a resident for tax purposes since Jan 2012.

    I plan to come back living in Australia in 2014, and therefore will become again a resident for tax purpose but my issue would be fixed by then (fixed loan would have switched back to variable)

    What is the impact to be or not a resident for tax purpose?

    Thanks

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,213

    As a non resident you would be paying much higher tax than residents. It may work out better for you to take your money offshore where it could be earning higher returns without the tax. This in turn would increase your deductions for the residential property here

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    https://terryw.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://Terryw.com.au/

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,213

    But you would need to consider currency risk – fluctating exchange rates.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    https://terryw.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://Terryw.com.au/

    Profile photo of FrenchChineseManFrenchChineseMan
    Participant
    @frenchchineseman
    Join Date: 2012
    Post Count: 20

    Thanks Terry.

    I thought it would be the opposite. What my accountant wrote me (but I might have misunderstood it) is:

    "Please note that any interest income earned whilst you are a non-resident of Australia for income tax purposes, the interest income should be taxed at a non-resident withholding tax rate of 10%"

    If I would be resident for tax purpose, it would be taxed at my marginal rate, wouldn't it?

     

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,213

    Yes, that is for interest – what is the tax rate in HK? Or other tax haven, maybe lower.

    But you are looking at tax on your rental income because you would possibly be positively geared because of the money in the offset. Maybe consider working out the effects if you took the money out of the offset and put it into a term deposit in Australia. Maybe more worthwhile.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    https://terryw.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://Terryw.com.au/

Viewing 11 posts - 1 through 11 (of 11 total)

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