Hi all,
I've always found the advice on here invaluable and was wondering if I could pick your brains a little more….
We recently landed a job which includes a heavily subsidised company house with no bills and absolute minimal rent. We have therefore rented out our one and only property in Sydney.
We have an IO loan of $559,409.00 at 5.81% variable for this property which is linked to an offset account. We are looking at switching to a 3 year fixed interest option at 5.29%. However locking in our interest rate for 3 years does not allow for an offset account. We've calculated the figures and think we would need to have an offset account balance of approx $50k to make the offset account worthwhile to keep. We wont have this sort of money for at least 2 years as we have a huge credit card debt and two car loans.
Our credit card debit is $22.5k at 19.99% – not good!!
What are your thoughts on this option that has been given to us?
– Switch to a 3yr fixed loan at 5.29% for the majority of our $559k loan
– Keep an absolute minimum amount as a variable loan and amalgamate the $22.5k credit card debit into this at 5.81% – which is obviously much more manageable for us.
Last year was horrible for us financially. I'm a stay at home mum with 3 small children. My husband had to have unexpected brain surgery last year and had to have a large amount of time off work. We subsequently lost our small business and had to put our mortgage on hold for 3 months as we simply couldn't make the repayments during that time. So whilst we may be able to negotiate a marginally better interest rate somewhere else, I doubt that our financials will be looked upon favourably if we were to try to swtich to another lender.
I'm thinking that the above option seems pretty good?!?!?!?
Thank you in advance for any thoughts/advice you may give (and have always given me in the past).
Have a great weekend
Couple of things in point format:
1. Why are you paying 5.81% – you should be getting a much lower rate. Call your bank and be put through the discharges team. Negotiate a rate of around the 5.50 mark. It will save a bit per month.
2. Some lender do offer offsets on fixed loans (such as Adelaide bank). Alternatively and a more common/simple strategy is to do a split loan. For example, fix $459k for 3 years and have $100k in variable with the linked offset.
3. Pay off the bad debt first which is the credit card before anything else. Have you considered a balance transfer on the c/c?
Regards
Shahin
TheFinanceShop | Elite Property Finance
http://www.elitepropertyfinance.com
Email Me | Phone MeResidential and Commercial Brokerage
boshie wrote:We have an IO loan of $559,409.00 at 5.81% variable for this property which is linked to an offset account. We are looking at switching to a 3 year fixed interest option at 5.29%. However locking in our interest rate for 3 years does not allow for an offset account. We've calculated the figures and think we would need to have an offset account balance of approx $50k to make the offset account worthwhile to keep. We wont have this sort of money for at least 2 years as we have a huge credit card debt and two car loa
Give Westpac a buzz and ask them to provide the 1% discount off the SVR (current promotion) which will take it down to 5.51% (I assume that's who you're currently with).
If they don't budge – mention that CBA are offering 5.5% and a $700 cash rebate for refinancing.
If you paid LMI on this loan previously (and recently) it can be harder to negotiate on rate because they know that the costs of refinancing to another lender are too high (because of a new LMI premium).
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
Hi Jamie
We didnt pay LMI but only have an 85% lending value ration which could make it tough. He suggested we apply for the possibility of a split loan with as much as possible going into the 3yr fixed rate account and only minimal in the variable account with the added $22.5 credit card debt going into that. One thing I didn't ask was the possibility of paying off the smaller variable account early. I have an appt with the bank later today, so will have to write down a list of questions, etc for that one!!!
Hi Shahin,
Thanks for your comment.
My every intention is to pay off the bad debt first – problem is, I want to get rid of the 19.99% interest rate. I cant do a balance transfer because we cant get approval for another credit card (given our current credit rating).
boshie wrote:Hi JamieWe didnt pay LMI but only have an 85% lending value ration which could make it tough. He suggested we apply for the possibility of a split loan with as much as possible going into the 3yr fixed rate account and only minimal in the variable account with the added $22.5 credit card debt going into that. One thing I didn't ask was the possibility of paying off the smaller variable account early. I have an appt with the bank later today, so will have to write down a list of questions, etc for that one!!!
Is it an IP or a PPOR? If an IP, you don't want to contaminate the loan by paying out a CC debt – make sure it's set up as a separate split.
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
Hi jamie
its an IP so I definitely don't want to incorporate the bad debt into my loan. Which is why it was suggested that I split the loan and keep the absolute minimal amount in the variable portion plus the cc debt. I just don't know what the best thing to do Is! All I know is that I've got to move our cc debt into seething manageable and I want to pay it off ASAP so I can then move onto our 2 car loans and get rid of those too.
Hi Boshie
Sounds biased but prob best to chat with a decent broker about your options – I doubt the WBC branchie is going to have a clue about correct loan structuring.
cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
I agree Jamie, but at the moment we are struggling to get us thru to the next mortgage repayment.
In a few months time, I'm sure we'll be in a better position, but I've just got to get us through which is why I've been trying to do a deal with the bank then ask for a second opinion about our options on this forum. This is all I can do at the moment – sorry!
Also, I try to do the right thing for us based on feedback from this forum. As there are many FA's on this site who offer good advice and I try to go with the majority vote which suits us best.
What do you mean by current credit rating? What is wrong with it?
Regards
Shahin
TheFinanceShop | Elite Property Finance
http://www.elitepropertyfinance.com
Email Me | Phone MeResidential and Commercial Brokerage
Hi Shahin,
our credit card has been over the $22.5k limit for the past 4 months with hardly any amount being put on it.. Plus we had to hold our mortgage repayments for 3 months last year due to financial hardships. Husband hasn't had a steady income for over 12 months due to operations, loss of business, etc. but has now secured a full-time position with BHP. He starts this Monday so we have a contract but no stable work history. We are also paying off a $10k ATO bill. Have 2 car loans. We are getting our life back together now, but very slowly and the weight of our credit card debt is the main issue for us.
Far out – ok so definitely negotiate the rate of 5.81%. Just a question – if cashflow is tight why do you need the offset (I can only imagine that you will not be able to save a lot to make it worthwhile)?
Regards
Shahin
TheFinanceShop | Elite Property Finance
http://www.elitepropertyfinance.com
Email Me | Phone MeResidential and Commercial Brokerage
Yes cashflow is super tight so we realise now that the offset account is of no benefit at all. We are much better getting a lower rate on a fixed 3 year term. Paying off all those debts is critical so realistically we will be extremely cashflow poor for the next 2-3 years.
Still smiling though!!! Phew
Making those small changes will not be a huge help but in situations like these you just need to manage a tight ship. Good luck and stay determined.
Regards
Shahin
TheFinanceShop | Elite Property Finance
http://www.elitepropertyfinance.com
Email Me | Phone MeResidential and Commercial Brokerage
Hi Boshie
Sounds like you on hard times. I suggest:
1. Ring credit card company and explain the situation, ask for a discount and if they can cut the debt in half and drop the rate or interest free to assist.
2. Ring/Write to the ATO and ask them to wipe the tax debt.Provide medical evidence etc. They probably will
3. stay with same lender and apply for a split loan. keep most on fixed and a small amount on variable so you can pay off if your situation changes. Ask for $20k extra to pay credit card. But try to get the cash to pay it yourself.
4. If credit card company says can't help then once the loan is done ring them again and offer to pay them 1/3 of the outstanding balance in cash within 7 days if they accept your offer. Take it up to 50% if you have too.
Good luck
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
Hi Terry
Thanks so much for your comments. In response:
1. I will definately call the credit card company – considering the amount of interest we've already paid to them over the past year or so I'd like to think they would take that into account and work with us to help pay it off.
2. I have spoken with the ATO and we have set up a monthly payment arrangement. Still not ideal but much better for us to manage.
3. I met with my bank today about splitting the loan. He told me they could fix the entire amount of the loan and lock it in for 3 years and then apply for a variable loan at a better rate of 5.6% for just the credit card debt of $22.5k ??? This seemed strange to me as I thought I would have to have a small amount in the variable portion of the loan (around $20k) then add the extra $22.5k credit card debt onto that ?? This would be perfect for us but it wasn't until after our meeting that I thought how can we possibly get a variable loan for a credit card debt but at a home loan variable rate of 5.6%?!?!?
4. – I'm not understanding what you mean – sorry
thanx again
It's quite common to consolidate cc debt via a home loan. Just remember that even though the rate is much lower, the term is longer – so unless you make extra repayments or reduce the term, you'll prob end up paying more.
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
boshie wrote:Hi TerryThanks so much for your comments. In response:
1. I will definately call the credit card company – considering the amount of interest we've already paid to them over the past year or so I'd like to think they would take that into account and work with us to help pay it off.
2. I have spoken with the ATO and we have set up a monthly payment arrangement. Still not ideal but much better for us to manage.
3. I met with my bank today about splitting the loan. He told me they could fix the entire amount of the loan and lock it in for 3 years and then apply for a variable loan at a better rate of 5.6% for just the credit card debt of $22.5k ??? This seemed strange to me as I thought I would have to have a small amount in the variable portion of the loan (around $20k) then add the extra $22.5k credit card debt onto that ?? This would be perfect for us but it wasn't until after our meeting that I thought how can we possibly get a variable loan for a credit card debt but at a home loan variable rate of 5.6%?!?!?
4. – I'm not understanding what you mean – sorry
thanx again
With my 4. I think credit card companies would be likely to cut a deal if you have a lump sum to offer and could pay them out in full within 7 days. Depends on your situation and your negotiating skills
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
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