Borrow Money from Family for Offset Account?

Lamoo-handy on 17/10/2021 - 22:18

Hi All

I was wondering if it is a good idea to borrow money from family to put in your offset account (for an investment property) to save on interest

Loan Details:
Investment property is/ was negatively geared
P&I interest rate is 2.09% pa and will reduce to around 1.80-1.89% soon
Loan amount 380k

Borrowed Money:
Amount 150k, interest rate of 1.6% (I pay to my mum either monthly or at request, highest saving acc interest is 1.1% at the moment and my home loan is 2.09% so I thought it would be a win win for both me and my mum)

Tax Details:
Currently on 37% income tax bracket

So the question is, is it worth it to borrow money to save on bank interest but loose the interest I could use to negatively gear?

Much appreciated in advance

Financial

Comments

  • cauilfield on 17/10/2021 - 22:28
    +3

    what's the point if the property is negatively geared?

  • rektrading on 17/10/2021 - 22:43
    +7

    Amount 150k, interest rate of 1.6% (I pay to my mum either monthly or at request, highest saving acc interest is 1.1% at the moment and my home loan is 2.09% so I thought it would be a win win for both me and my mum)

    It isn't a win for your mum.

    The annual inflation rate in Australia jumped to 3.8% in Q2 2021
    https://tradingeconomics.com/australia/inflation-cpi

    She is actually losing less purchasing power by lending it to you but still not a win.

    A win for your mum would be if she invested $150,000 in other markets picking the best-performing assets.

    • johnyiu on 17/10/2021 - 23:17
      +1

      Agreed with an interest rate of 1.6% or 1.8%, why not think about something else.

      If both of them are risk-averse. Then it's kind of the most secure method and close to 0 risks.
      Inflation is another factor.
      With the current situation, I guess inflation might go higher. :(

      If he/she has both investment and owner occupy. Taxwise, it's better to place in your owner-occupied loan, not on the investment loan or offset account. :)

    • Ozbfan on 18/10/2021 - 08:26
      +5

      People are using opportunity cost to say it is a bad deal for his mum. His mum is only losing the money if she were going to invest it in a non-cash account. If she has planned on keeping it in a cash account, then she is better off relatively.

  • SF3 on 17/10/2021 - 23:26

    Only worth it, if PPOR.

  • cnmarine on 18/10/2021 - 00:14
    +7

    It's win for you, not much for your mum…………without love involved, noone would lend you 150k unsecured at 1.6% lol.

    • amoo-handy on 20/10/2021 - 21:10

      lol my mum would just keep the money at the bank if she didnt give it to me
      Shes not much of an investor
      Unless I take the money and invest it in stocks

  • Gelato on 18/10/2021 - 01:20

    I won’t bother if it’s for an investment property

  • AustriaBargain on 18/10/2021 - 02:17
    +1

    If it's an investment property, why don't you let your mum buy into it and receive a proportional share of the rental income until you buy her share back off her at 1.6%.

  • CheapskateQueen on 18/10/2021 - 08:16
    +1

    assuming your mum doesn't want to invest in something else and just has the money in the bank, then yes go for it

    I'm doing this with someone atm

    you can still claim the interest you pay your mum as a deduction on your rental property if she declares the interest as her income.

  • altitudinous on 18/10/2021 - 10:07
    +1

    Borrowing money from family is a bad idea. It will be held over you.

  • JIMB0 on 18/10/2021 - 10:07
    +1

    You can still claim the interest you pay your mum, as she has to declare it and pay tax anyway.

  • jv on 18/10/2021 - 10:11
    -1

    Why are you ripping off your mum?

  • bmxr on 18/10/2021 - 10:36
    +2

    2.09% p.a. less 1.6% p.a. on $150,000 is a $735 saving per year on interest. Why would you bother?

    Even worse, you say your loan is reducing to 1.8-1.89% p.a. in the near future, which at 1.85% would save you $375.

    And it's negatively geared. For $150,000, this is such a waste of resources for both of you.

  • spal on 18/10/2021 - 11:13
    +3

    Assuming your mum has no better use of the $150K and lending you is the best outcome from risk v return position. You save $300 pre-tax or $183 post tax when you move your loan down to 1.8%. You said that you are at 37% bracket (I added 2% medicare levy). So, you are at least $120K income (after tax deductions from your investment property). Although, tax deduction on related party loans is questionable and you will need to speak with an accountant to setup the arrangement. There are case laws between spouses which the taxpayer lost. If you ask me, I would say not worth the hassle for the level of advantage.

    • amoo-handy on 20/10/2021 - 21:13
      +1

      detailed explanation 👍
      Agree not worth the hassle for the return

  • amoo-handy on 20/10/2021 - 21:14
    +1

    🙏🙏 Appreciate the help guys xx

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