Investment Property & Redraw question

Hi guys,

Just a quick question (probably pretty basic for most of you..)

I currently own a property in SA. The value of the property is ~$375,000 and my loan is at $310,000. I'm paying 5% PA, with repayments set to P+I. My minimum repayments are approximately $860/fortnight and since the first day I've made extra repayments, bringing the fortnightly repayment to $1,000.

I'm now in a stable relationship and will be signing a contract with my partner to buy a new house in SA. We'll be splitting the loan 50/50 and subsequent repayments 50/50.

My extra repayments have amounted to approximately $4,100. At this point, we have about $60,000 together which we'll use for a deposit. Since we'll be signing the contract before December 31st, we'll be eligible for the First Home Construction Grant (of approximately $1,250 of the $8,500 available) and also the full first home owner's grant of $15,000.

My mortgage for my current property is with BankWest and savings/transaction account is with NAB. I do not have an offset account however do have a provision for it.

I've spoken to a broker already, who is a friend of ours and has given us some good tips.

Would it make sense to move my savings and transaction account over to BankWest, setup a fee-free offset account and shift my savings into that, as well as redraw (with the free redraw facility) the surplus cash and put that into my savings too?

Estimated completion date is mid-2014 which gives me enough time to save more and save more on interest repayments in the short term before commencing our second mortgage.

Thank you in advance.

 

Are you sure you can qualify for the first home owners grant if this is your second property?

You should change the exisitng home loan to interest only and set up an offset account on the new property. Close all your other savings accounts and just use the offset for all cash. If you want to keep your finances separate from your partner you may be able to each get an offset account linked to the new home loan.

don't take the redraw money out as this will be considered a new loan for tax purposes and the interest on this won't be deductible - it will also create a mixed purposes loan and result in difficult calculations each year, especially if the loan is PI.

I have assumed you will be living in the new one and renting out the old house.

 

Andrew,
I agree with Terry, change your existing loan to an interest only 5 year term now and I would look to use the BankWest offset account, at least until you move into your new home. Transfer your current savings across into that. Leave the funds in redraw alone, they have effectively gone into the loan unless you refinance this to extract equity to be used for investing purposes.

Not having to pay that principal component will give you a greater deposit for your new home.

For your new home, go to another lender (no cross guarantee) and set up a loan facility that has an offset. If keeping finances separate is an issue, use a lender that offers multiple offset facilities.

Once you are in your new home, move the funds from the BankWest offset into the new offset.
Good luck with it.
Greg