If I take a loan $200k with an offset account $200k against our home property, and use some of the money in this offset account for the deposit of our first investment property, how is the interest rate going to be charged? investment loan rate or home loan rate?
Thanks for our help!
The interest rate will be charged at whatever the loan’s rate is – not what the funds are used for.
On a more important note – DON’T use the funds directly from your offset account, as this will mean you’re limiting your tax deductibility by using cash funds instead of borrowing specifically for an investment purpose. A much more effective structure is to place the require funds for the investment purchase into your loan, then release it as a separate investment split. This will enable you to effective claim 100% of the interest on the purchase, stamp duty etc.
Corey Batt | Precision Funding
http://www.precisionfunding.com.au
Email Me | Phone MeInvestment Focused Finance Strategist - servicing Australia-wide
Thanks very much for your answer, Corey.
May I just ask a bit further about your explanation:
When I have $200k offset against $200k loan from my PPOR, if I only need $100k as a deposit for my investment property, I shouldn’t just take the $100k out as a cash to pay deposit for IP, I should structure it as a loan borrowed against the offset account.
You cannot ‘structure a loan borrowed against the offset’ – an offset account is a type of transaction account, not security.
This is the way it would be achieved:
Existing Loan: 200k
Offset account: 200kPlace 100k of offset funds into loan account, reducing existing loan balance to 100k.
A new loan application is submitted for 100k, whilst simultaneously cancelling the 100k available in redraw from the existing loan. The new loan is approved and funds made available for your investment loan purchase.
End result is you have:
Home Loan: 100k, Offset account: 100k
Investment equity release: 100k with 100k available for your next deposit.The interest on the 100k released is tax deductible if you used for investing.
Corey Batt | Precision Funding
http://www.precisionfunding.com.au
Email Me | Phone MeInvestment Focused Finance Strategist - servicing Australia-wide
Thanks very much, Corey, I understand now:)
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