If you’re planning to invest in property, it’s important to choose the right home loan.
We sat down with Paul Vivian, Bankwest’s General Manager of Products and Pricing, to talk about the pros and cons of using an offset account for your investment property.
The benefits of using an offset account
An offset account is a loan feature that can potentially help you save money on interest by ‘offsetting’ the amount you owe on your mortgage with the funds in your bank account.
So how does it work?
Vivian gave us the following example. Let’s say you take out a $450,000 mortgage at 5% interest per annum for 30 years. If you were to put $50,000 in an offset account, you’d only have to pay interest on $400,000 – not $450,000 – saving you more than $139,000 in interest and reducing your loan term by nearly five years.
“Because the interest rate on your mortgage is generally higher than what you can earn in a savings account, an offset account can be a great option if you have cash to set aside, such as rent paid by tenants,” says Vivian.
“It can work if you are a disciplined saver wanting to pay down your loan faster, while still having access to the savings sitting in the offset facility.”
And there can be more benefits for property investors, says Vivian.
Investors may be able to claim a tax deduction for interest paid on their investment property loan if it is clear that the loan’s purpose is specifically to fund the investment property.
Investors could inadvertently change the loan’s purpose if they deposited additional funds into their mortgage to reduce interest payments, then later withdrew those extra funds for another use.
With an offset account, deposits and withdrawals can be made without the purpose of the loan being affected. Vivian notes however that investors should always get their own independent tax advice before proceeding with an offset account in the above circumstances.
The goal of many investors is to maximise the interest charged to their investment loan, in turn maximising their tax deduction. These investors often use an offset account to reduce the interest charged to their owner-occupied loan, which isn’t tax deductible.
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We sat down with Paul Vivian, Bankwest’s General Manager of Products and Pricing, to talk about the pros and cons of using an offset account for your investment property.
The benefits of using an offset account
An offset account is a loan feature that can potentially help you save money on interest by ‘offsetting’ the amount you owe on your mortgage with the funds in your bank account.
So how does it work?
Vivian gave us the following example. Let’s say you take out a $450,000 mortgage at 5% interest per annum for 30 years. If you were to put $50,000 in an offset account, you’d only have to pay interest on $400,000 – not $450,000 – saving you more than $139,000 in interest and reducing your loan term by nearly five years.
“Because the interest rate on your mortgage is generally higher than what you can earn in a savings account, an offset account can be a great option if you have cash to set aside, such as rent paid by tenants,” says Vivian.
“It can work if you are a disciplined saver wanting to pay down your loan faster, while still having access to the savings sitting in the offset facility.”
And there can be more benefits for property investors, says Vivian.
Investors may be able to claim a tax deduction for interest paid on their investment property loan if it is clear that the loan’s purpose is specifically to fund the investment property.
Investors could inadvertently change the loan’s purpose if they deposited additional funds into their mortgage to reduce interest payments, then later withdrew those extra funds for another use.
With an offset account, deposits and withdrawals can be made without the purpose of the loan being affected. Vivian notes however that investors should always get their own independent tax advice before proceeding with an offset account in the above circumstances.
The goal of many investors is to maximise the interest charged to their investment loan, in turn maximising their tax deduction. These investors often use an offset account to reduce the interest charged to their owner-occupied loan, which isn’t tax deductible.
Follow :
https://www.facebook.com/Valentin.Fritzmann
https://www.facebook.com/OfficialValentinFritzmann
https://twitter.com/ValentinFritzm
https://pinterest.com/valentinfritzma/
http://www.stumbleupon.com/stumbler/ValentinFritzma
http://valentin-fritzmann.blogspot.com/
https://www.youtube.com/c/ValentinFritzmann
https://www.linkedin.com/in/valentinfritzmann
https://plus.google.com/+ValentinFritzmann
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