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Effective Loan Structure

Having the right loan structure can save you more money than just having the cheapest loan.
Separating non-deductible and deductible debt means you will maximise tax benefits and simplify your finances
Using offset accounts and credit cards to pay your loan off sooner

Variable or Fixed?

Variable loans

Flexibility - extra repayments, redraw
More product choice – offsets, lines of credit
Will fluctuate with market conditions

Fixed loans

Security of set repayments
Insurance against future rate rises
Lacks flexibility
Costly to exit

Interest Only or Principal and Interest?

Interest Only repayments can lower your repayments however can cost you more over time
Principal and Interest repayments are higher than I/O however have the benefit of reducing your loan over time and will cost you less in interest over the long term

Deductible or Non Deductible Debt

Deductible debt is usually loans that have been taken for business or investment purposes
Deductible debt is usually loans that have been taken for business or investment purposes
Remember it’s the purpose of the funds NOT the property by which the loan is secured.
It’s best to clearly separate the different debts to maximize the tax benefits and simplify your finances

100% offset account

An offset account is a separate savings account where the balance is offset daily against the loan amount.

For example, if you have an Home Loan with $200,000 owing and a 100% offset account with a credit balance of $20,000, in effect, you will only pay interest on your home loan on a notional balance of $180,000.

Recommendations

Use an offset account attached to your non-deductible debt. Repayments should be P&I and loan variable.
Set up separate loans for deductible debt. Loans should be Interest Only and either basic fixed or variable or lines of credit.
Use credit card with 55 interest free days for day to day expenditure and then automatically sweep at end of month.