Rental properties and offset accounts
What is a mortgage offset account? It is like an everyday bank account, except it is linked to your home loan. You can have your income deposited into it and have any bills paid from it.
Any monies that are deposited into the offset account will offset daily against the home loan principal, meaning you will have less of a loan balance to pay interest. For example if you have a home loan of $300,000 and $50,000 in an offset account, the interest you will pay will be on the difference ($250,000).
This effectively means you are reducing the amount of the loan to pay interest on without actually doing it, normally if you were to deposit all of your salary into your home loan, you would inevitably have to redraw and incur fees in order to pay your monthly bills.
As offset accounts reduce your interest bill without actually reducing the principal on your loan, they make a great option for people looking to eventually rent out their property in the future. This is because they can use the money in their offset account for the purchase of a new property leaving the first property with an untouched fully claimable loan.
The interest paid on the loan will now reduce the rental income coming from the newly transformed rental property and thus reducing the amount of tax to be paid. The goal of maintaining deductible debt while decreasing non-deductible debt will now have been achieved.
For more details on an offset account and how it can help your financial position, feel free to contact one of our expert accountants.