I do alot of hypothetical situations in my threads. But hey this is how i will learn.
So say i have a 250k loan and its negatively geared and i have to pay say a nice rounded $100 a week to satisfy the rest of the loan repayments. This at the moment is an interest only loan.
Before buying this house i was saving 200 a week. So now i have a spare $100.
This $100 is not needed for my lifestyle as i have been without it for a few years and I need to put it to some financial intelligent cause.
So would it be better to turn the loan into a interest/principle and then pay the extra $100 off the loan(this will then build equity and reduce the interest repayments) or to just put it into savings for the deposit on my next house.
Alot of people like interest only but im thinking that if you have this extra 100 bucks, why save when you could build equity which you can then use, and while your saving you will be lowering the interest at that time.(even though it will go back up when you buy more)
Woah that was a big post, sorry guys.. Didn’t expect it to go for so long.
Well hope to hear from you all.
Why not try for both? Find an IO loan that allows extra payments. That way you can pay your extra $100 pwk but not be committed to it. You could then access the extra equity when needed.
Or an offset account might work for you – you put the $100 pwk into the offset account and it reduces the interest you pay by deducting the balance of the offset account off your loan, and then calculating interest accordingly.
There are a few options to explore.
Wake
If i just have an interest only loan and i make extra repayments(to build equity). Will the extra repayments like have fees attached to them(or any things that will take away from doing this option).
Also I have been hearing about these offset account. I have no idea whatsoever to what these are at all. Can you please help??
Hi DraconisV
Usually with Io loans you can make extra repayments without penalty and these extra repayments can often be withdrawn again later (maybe with fees).
A possibly better solution would be to use a IO loan with a 100% offset account. There can be tax probelms if you pay down a loan and then redraw money. having an offset account works hte same way, but avoids the problems.
Terryw
Discover Home Loans
Parramatta
[email protected]
Sign up to my mailing list.
Just send me a blank email, with “subscribe†in subject line.Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Thanks. I think an IO loan and a 100% offset account is the way to go.
You must be logged in to reply to this topic. If you don't have an account, you can register here.
