Currently my partner and I have a Offset account setup that is directly linked to our mortgage of 293,500. It is interest-only and we have our renters pay into that account directly, which is then direct debited into the mortgage.
My question is, we are looking at putting our savings (over 5k atm) into the offset account and also changing our details so our wages go in there aswell. Is this a bad idea to have our wages going into the offset account? I was thinking that our wages would help reduce the daily interest on the loan.
Be aware, I am realitively new to this so I am trying to understand if what I am thinking of doing is right.
My calculations said that if we had say $5,000 in the offset account @ our current rate 5.5%, the interest daily would be $43.47 compared to $44.22 without the money in there. Is this correct?
Cheers,
AndrewHi Andrew
Do you have the offset linked to an investment loan or your own home loan? If you still have a home loan it would be preferable to link it to this – to save non-deductible interest.
Also, your interest rate sounds a bit high too. Maybe you should consider looking around a bit or ask your lender for a bigger discount.
The interest saved should be the equivalent of investing $5,000 at 5.50%pa = $275 saved per year = 75c per day. May not save much but it all adds up.
It would be best to put all spare cash into your offset and to leave it there as long as possible.
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
Andrew,
Also its tax free, saving you another 30% or so.No WJ, it's not really "tax free". Your just offsetting tax deductible debt. It's only when you're offsetting private debt that you can truly call it "tax free". For example, if Dru is in the 39.5% tax bracket, his effective saving with the offset account balance is 5.5% X 0.605 = 3.3275%. If the offset account is against private debt, then he'll be saving 5.5% with the balance.
Andrew the formula is simply: Daily Interest calculated for today is precisely: {(Yesterday's closing loan principal – yesterday's closing offset account balance) x (loan interest rate)/100 } / 365. Each of these daily contributions are added together at the end of the monthly cycle for your monthly interest, ie they don't compound daily, just monthly.
By all means, put everything you've got in your offset account. It's not necessary to separate rent from income, that's what your yearly summary from the agent is for, or just keep a database/ spreadsheet of your own for each month's rent & expenses. It doens't matter a razoo where that income/rent sits so keep it in your account that pays you the most or saves you the most.
cheers, S/CThanks everyone for the reply.
My partner and I are currently living at her parents house, so this property is essentially a IP at the moment and the offset account is directly linked to the IP. We will be moving into it in coming months for the 6 month period, then moving back out and putting it up for rent again.
I'll have to double check the interest rate but I know its in the low 5's at the moment, I thought 5.5% will at least give myself a rough estimate. What is the going rate these days for interest only loans?
Cheers,
Andrew.StumpCam, you say that I would only be effectively saving 3.3275%. Does this mean I might be better off leaving the cash in a term deposit with a higher rate, or am I leading myself off track?
Anywhere from 4.67% to 5.5%.
Richard Taylor | Australia's leading private lender
I just did a check, and it seems that our current rate is actually just under 5.5% Per annum. (Works out to be about 5.49%)
When we originally decided to buy the house the home loan was set up so that the first 5 years was interest only, after that it went into P&I. I was pretty happy with our home loan but if our rate is are the highest end of the scale, it makes me wonder whether we have chosen the wrong lender to go with.
Our monthly repayments at this current time is $1,340.67 ($16,088.04 per annum). Our rent payments bring in $16,900.00 per annum. Are we paying too much in terms of our loan, would it be wise to look at another lender and suffering a penalty?
Hi Dru, interest in your term deposit is taxable income, so to compare with the same tax bracket of 39.5%, you'd need to be getting better than 5.5% which will give you 3.3275% after tax. If you started your term deposit a while ago, you may well be getting better than that. You'd pay a penalty if you withdraw it early. The difference of a percent or two on 5k isn't that significant in the short term though.
I'm currently paying 5.11% with a pro package with Westpac as a comparison. There's no difference in interest rate between IO & P&I; just the repayments are different.
There should be little penalty in refinancing if you have a variable loan. There's no mortgage stamp duty any more (at least in Qld) but you may have a few other fees. The most significant is usually the establishment fee, but I don't pay those with my pro package. I'm sure the mortgage brokers here could help you with that. Your current lender will probably discount your rate if you start mentioning the "R" word.
Watch out for a deferred establishment fee
I think at this current time, I will leave everything as is. It's all running smoothly at the moment and I want to focus on learning alot more about property, investing and so on. Our property is basically maintenance free at the moment so better off not disturbing the peace!
I would really like to thank everyone so far for helping us out, it's all new to me and I'm coming to understand it all thanks to you guys and Steve's Book.
Cheers.
You must be logged in to reply to this topic. If you don't have an account, you can register here.
