Hi all,
After researching mostly on these forums over the last few years I finally dived in a bought my first IP!
The loan is set up as a typical interest only structure which includes:– the loan account (what I owe the bank)
– the offset account (where all my money goes into – salary, savings etc.)
– a credit card account (used for maintenance/reno costs only but paid back before intrest period starts – easier to keep track of expenses for tax and keeps money in offset account for a little longer)I was hoping I could get some advice on how people manage their money using this kind of account structure as I can see it becoming quite confusing compared to what I currenlty use.
Right now I have 3 accounts:Acct 1 for: bills, rent, food, car rego, petrol, savings, living expenses etc. (most of my salary goes here)
Acct 2 for: dining out, new pair of shoes, few beers at the pub etc. (balance of salary goes here)
Acct 3, high interest online savings account for: savings – home deposit (money is diverted automatically from Acct 1 each fortnight)
With the offset account it's obvious to have all my money in here including the incoming rent from the IP.
What method do people use to keep track of monies coming and going through one account?? I can see myself getting tempted by the balance if I don't have a managment strucutre.I'm assuming an Excel spreadsheet of sorts, but any structure or layout advice would be appreciated!
Thanks
If your worried about spending the balance, why don't you divert what currently goes into Acct 2 into a seperate account, and leave acct 1 and 3 in your offset? That way you won't be tempted to spend your savings on luxuries, and still have the majority of your income offsetting your mortgage.
Jess
J-lou wrote:If your worried about spending the balance, why don't you divert what currently goes into Acct 2 into a seperate account, and leave acct 1 and 3 in your offset? That way you won't be tempted to spend your savings on luxuries, and still have the majority of your income offsetting your mortgage.Jess
Hi Jess, thanks for the fast reply.
I did think of doing that but I thought the idea was to keep as much money in your offsett account as possible.
Not sure of the sums, but would diverting $350 per week into just a "spendings" account affect my monthly repayments given that intrest is calculated daily? I'm not necessarilry going to spend all that much each week, some of it might be saving up for a new pair of shoes, weekend away etc.
Thanks
The structure has a significant flaw if sold to your for mortgage reduction. Hence ASIC have a section on their website calling it a scam and the banks approx 5 years ago withdrew their marketing promoting off-set or line of credit for mortgage reduction.
Anyone who remembers the graphs showing a home loan over 30 years without offset and then 8 years with offset would remember the little captions:
"this is on the assumption of net income of $5000 p/m and monthly expenses of $1500 p/m"
What the clients did not realise is that this is no different than increasing your repayments to $3500 p/m (difference between income and expense). The standard repayment on the 30 year loan might be $2000 therefore the real mortgage reduction came from $1500 additional repayments per month. Not Off-Set!
So truth is:
If you have a credit card that starts at NIL at the start of the month. Then pay in full at the end of the month with say $1000 owing. You could say the average balance throughout the months is $500.
With a loan at 6.66% the math is as follows: $500 x 6.66% = $33 savings per annum. Bugger all for all the effort.
So hopefully now you know the real savings is via additional repayments or savings; not flushing day to day banking through the account / using a 55 day int free credit card: – THIS HAS MINIMAL EFFECT AND IS A SALES SCAM !
This is the reason I have said in other posts CBA MISA is not a bad thing (min $500 transaction) and that a 100% offset account should not be your DAY TO DAY bank account – for the exact reasons you have mentioned.
The questions is how much do you have in your ACCT 2 each month?
that figure multiplied by the interest rate of your loan is real interest benefit of offsetting your day to day cash.If your broker has sold this product for mortgage reduction purposes please lodge a complaint to the financial ombudsman so we can knock the dodgy people <ed. moderator> out of the industry.
For more info read the Australian Security and Investment Commissions comments here:
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