How the wrong structure can cost you thousands: part 2
Making just a few small errors with your finances could completely derail your portfolio and cost you significant time and money.
Horror story! Customer buys owner occupier five years ago knowing that he will upgrade in a few years and rent out his owner occupier as an investment. Sound familiar so far?
Problem. Customer earns too much money and has paid off most of the loan within five years! How is he going to receive the benefit of negative gearing now and how will he and his wife be removed from the burden of having too large a home loan on their new owner occupier loan?
Had the banker who set this up in the first place enquired with the customer as to their future strategy, then they would have given the customer an offset to pay all of their excess funds into. Why an offset? Well in this case, an offset would have held the clients funds in a secure place whilst saving them thousands in interest off their home loan. It’s like having money on your loan but it isn’t actually “sitting” in your loan.
Had the customers worked this to it’s conclusion, they would have had ample money’s in their offset “savings” account and withdrawn all of those funds to purchase their new owner occupier home. In the meantime, their former home which is now going to be used as an investment has a sizeable ‘deductible’ loan remaining. In other words it was never paid down at all!
Had the customers banker set up an offset from the start, these unhappy customers would not be lumped with a small investment loan and an unnecessarily massive home loan.
This is not an advertisement for offsets by the way. It’s a clear message though to ensure you get the right broker or banker. And never let them go once you find one!