Pay down Investment Property or Put in Saving Account

Ltntea on 02/02/2024 - 20:05

Hello folks,

I have $30,000 and don’t know if I should put that money in my offset account to offset my investment home loan 6.09% interest ($380,000 left) or put it in a BOQ saving account earning 5.40% interest.
My annual income is $100,000.

I normally negative gear my property which reduces my income to $80,000 but by putting my $30,000 into the offset account, it will reduce my deduction so I don’t know if that would be better or putting it into saving account.

Can someone do the calculations and let me know which is the better option. Thanks

Ps I know it’s better to put the money in the stock market, but it is at an all time high so I’m trying to time the market by holding onto cash.

Financial Bank Account Savings Account

Comments

  • onetwothreefour on 02/02/2024 - 20:16
    +14

    lol

  • bemybubble on 02/02/2024 - 20:20
    +4

    6.09 - 5.40 = 0.69 better off sticking it in your offset.

    I really hope you are trolling for all of OzB sake…

    • Muzeeb on 02/02/2024 - 20:56
      +2

      69 better off sticking it in your offset

      Is this an euphemism?

  • SnowDragon on 02/02/2024 - 20:26
    +2

    I've had a few drinks and can't be bothered doing the math myself so asked GPT

    Sure, let's break down the savings for each scenario:
    Putting $30,000 in the Savings Account:
    Savings Account Interest Rate: 5.40%
    Interest earned per year = $30,000 * 0.054 = $1,620

    Putting $30,000 in the Offset Account for the Investment Property:
    Mortgage Owed: $380,000
    Mortgage Interest Rate: 6.09%
    Interest saved per year = $30,000 * 0.0609 = $1,827

    So, by putting $30,000 in the offset account for your investment property, you would save $1,827 in interest per year. Conversely, if you put the $30,000 in your savings account, you would earn $1,620 in interest per year. Therefore, putting the money in the offset account for the investment property would save you more money in this scenario.

    Additionally, I asked "What does this mean if I negatively gear the property. How much of that $1827 would I get back at tax time"

    Let's say you're in the 37% marginal tax bracket, which applies to incomes between $90,001 and $180,000 (for the 2023-2024 financial year, for example):
    37% of $1,827 = $676.99

    This information could be wildly wrong. DYOR. I've come this far so I may as well post this comment.

    • jjjaar on 02/02/2024 - 22:10
      +2

      Also don’t forget

      Interest earned per year = $30,000 * 0.054 = $1,620

      This will increase your taxable income.

  • JIMB0 on 02/02/2024 - 20:34

    You can save even more on tax by drawing all the money out of the offset. Then you'll need to create another new ozb account to ask what to do with all the spare cash you have.

    • wobblydrow on 02/02/2024 - 22:09

      Actually the differential is much higher, as on the interest is a savings account you will pay 30% tax on the interest = $1134, in offset its equivalent of earning 9% interest in a savings account, as you receive the benefit without being taxed - so to put the same $ in your pocket using a savings account will need 9% before tax, so its more like the effect of $2300 pre tax.
      Simple maths i cant believe people need to ask

      • SnowDragon on 02/02/2024 - 22:14

        But it's an investment property - not PPOR. Does that make a difference?
        Genuinely curious to know. I always thought negative gearing was the way to go, but since you're not getting 100% back, it's always better to be positively geared.

        • wobblydrow on 03/02/2024 - 13:51

          An an offset will always have a higher effective return.
          Negative gearing might lower your taxable income today but you pay later when the CGT is charged as cost base is reduced.

          Offset prevents interest ever accumulating.
          Your 5.4% interest account ends up being under 4% after tax, whereas in an offset it's having the same effect as earning 10% interest, irrespective of gearing.
          Your total wealth long term improves putting on an offset (based on what you have said)

  • Lunarboogie on 03/02/2024 - 07:44

    Utilise your catch contributions and put the whole lot into super. It's a better alternative to either the offset or a savings account options.

  • tulip99 on 03/02/2024 - 09:22

    Who are you with to get 6.09% please? I'm with ANZ and they're charging me 9.24% for an IP.

    • tntea on 03/02/2024 - 11:15

      I have 2 home loans. ANZ told me I can treat the 6.09% residential home loan as my investment home loan for tax purposes. And the investment home loan which is fully offsetted as my residential home loan. ANZ told me it’s better to structure it this way because you can only have 1 ppor home loan.

      • Nugs on 03/02/2024 - 13:19

        doesn't sound dodgy at all (IANATA)
        .

      • jon on 04/02/2024 - 10:29

        You can't just swap how you treat your loans with an actual refinance and loan restructure. Maybe get some real advice from an accountant but I don't think what you have just suggested is a legal way to structure your loans for tax purposes.

  • BartholemewH on 14/02/2024 - 11:06

    The 30k in the offset will decrease your interest/deductions by $1827.00, but will result in (0.325+0.02) x 1827.00 = 630.32 in increased tax liability. Total benefit ~$1197

    The 30k in the interest bearing account will gain $1620.00 in interest and result in (0.325+0.02) x 1620.00 = 558.90 in increased tax liability. Total benefit ~$1061

    Roughly, on an annual basis.

    Marginal rate at $80k vs $100k is unchanged.

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