We have a home loan with interest rate of 5.57 fixed for 4 more years with 12 years to go. We have been told that by refinancing with a loan that has a line of credit we will reduce our loan time by quite a few years. I am not convinced.The same advisor proposes purchasing an investment property (negatively geared) together with the line of credit loan to reduce the home loan time.
I am glad you are not convinced. You have an excellent interest rate when comparing to the current rates. A Line of Credit would not even be my choice if I was forced to make one. A loan with offset account would serve you much better.
If you want to pay your loan off quicker while in a fixed rate period, check your loan documents to see what additional payments you can make without incurring any penalty. At the rate you are currently paying, I don’t think you would pay any penalties even if you refinanced.
After the fixed rate period, look at changing the structure to an offset.
You fixed very well!!!
))TMA
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First Home Buyer WebsiteAfer the fixed rate the interset will only rise one percent per year untill it reaches the then current rate. Would an offset account be a better deal then? Our present loan has no fees or penalty payments.
As to the bit you added, please ask your adviser how a negatively geared property will assist reduce debt when you are losing money each week????
TMA
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First Home Buyer WebsiteI consider an offset account miles ahead of a LOC. It is cheaper and offers more opportunities.
TMA
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First Home Buyer WebsiteConsidering the low interest rate we have would an offset account be any better.
This is a great site!It is hard to say. It depends how much cashflow you have to put through the offset account. As mentioned earlier, you should also look at how much you can pay as extra payments to your fixed loan each year.
TMA
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First Home Buyer WebsiteThat is what I thought. There may be cashflow through the account but it would all have to be used by the end of the month to keep up with bills. As we have little left over each week.(Stil lots of teenagers at home). So with a good interest rate it may be better to make extra payments whenever we can.
I agree with Terry. You have to be very disciplined to work well with a LOC – the additional funds available at call seem to be very tempting for many people.
With your interest rate at 5.57%, I’d be staying put and follow Terry’s suggestions.
Megan
Hi Megan,
You do realise my name is NOT Terry don’t you???
))He is a broker on this site using his own name.
TMA
http://www.email4money.info
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First Home Buyer Website
))
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