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August 26, 2009 - 9:26 am

fWord wrote:

I'd be very interested to know how to recover the $375 cost (assuming it's application fee we're talking about) on a single loan.
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Sorry Richard, I meant 'annual fee', not 'application fee'. The pro pack may also come with an application fee.

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August 26, 2009 - 9:24 am

Qlds007 wrote:

Not sure what rate you are on or the loan amoutn but most clients would get the $375 back several times over even with just one loan.

The Homeside variable rate is currently 5.07%, and is not a 'honeymoon rate'. No application fee, legal fees $162.50, monthly fee of $10. Loan is 300-350K.

I'd be very interested to know how to recover the $375 cost (assuming it's application fee we're talking about) on a single loan.

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August 25, 2009 - 11:35 am

Qlds007 wrote:

Unless he is investor orientated i bet he will have no idea or would have recommended this from day 1.You can transfer funds at any time to pay down the principal balance should you wish.Loan must have been very small as most client look at the Pro Packages and that has no offset fees. 

It wouldn't be surprising if I were one of the few first home buyers he's seen actually asking these questions. I've even tried asking colleagues at work questions along a similar line and all of them have no idea what I'm talking about. They know that they're using an offset account and that's pretty much it.I had a look at NAB's choice package but noticed it had a pretty hefty application fee and I think even a monthly ongoing fee. It was suggested that I consider the pro packages if I wanted to go full-on investing in the very near future. I'd actually like to do that, but after driving my bank balance virtually to zero after this mortgage, it's going to take time before the next property. So I thought to think even more long-term.It would take me a number of years to build up sufficient equity in the current house before I can take a second mortgage. By then I'll revise all options and consider going a pro package where it'd be cheaper to have multiple loans going at once. For a single loan I thought to keep it simple as possible but not discounting things like offset, which seem to be indispensable.Now of course I'm desperately hoping for a pay rise early next year. I need at least a 5% pay rise to accomodate a 1% increase in interest rates. But if the interest rates don't go up too quickly I still have a buffer to see me through at least until rates start to hit double digits!

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August 25, 2009 - 8:43 am

Kramulous wrote:

If the offset comes with no monthly fees, I'd be going for it. 

If you make extra repayments and then turn the property into an investment, you will be unable to get the extra payments out of the property without experiencing the wrath of the ATO.  While it is an investment, you want the interest payments to be as high as possible (for a given loan) so you can claim tax. 

Having an offset will temporarily lower the daily interest you are paying while the property is not an investment.  As soon as you turn it into an investment, you can withdrawal the cash to increase the interest (and decrease your tax liability) and it causes zero problems.  The offset account is the same as earning the amount of bank interest; tax free. 

I made the mistake when I first started of putting in 40% deposit when I bought my first house.  I should have had the deposit of 20% and put the rest into an offset account.  Now that the property is an investment, I can't get my cash out without incurring tax.  You live, you learn.

Looking through the stuffy PDS manuals it appears that the offset account itself has no fees. However the offset account can only be maintained if I had a loan with Homeside. The Homeside loan itself does attract a $10 monthly fee. It's like NAB's iSaver account that can be bundled to a separate NAB account, but the iSaver cannot exist on its own or be used with an account from another bank.

When you state that I can claim mortgage interest against tax, what percentage of this interest can I claim? I also assume that I cannot claim anything against tax while I'm using it as a PPOR for the first 6 months. But when I rent it out for the next 6 months of that calender year, I can claim those 6 months of interest payments against tax?

Glad I found this place fairly early, while searching for the house. There's lots of useful info here. If I didn't read about the goodness of offset here, I would have been making extra repayments if I got a payrise, or if interest rates stayed low. I only loaned about 73% of the value of the home, so I should have instead borrowed the max the bank would be willing to give me, and used the excess for offset.

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August 25, 2009 - 8:30 am

Qlds007 wrote:

Yes Interest only gives you far more flexibility as what may be your PPOR this year and possible next year may one day become an IP.Why box yourself into a Tax corner when you dont need to.

The IO payment is an interesting concept I'm very new to. Still have the 'old' thinking that I should eventually try to pay down the loan so I can eventually own the house outright. I'll run this by the broker and see what else he has to add.

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August 25, 2009 - 4:01 am

Qlds007 wrote:

Not sure why your Broker has suggested Homeside (maybe i have an idea) but an NAB interest only loan with 100% offset account would be the way i would look to go.

There is no actual interest payable on the offset account so nothing to declare as far as Tax time it merely reduces the interest payable by the same amount.

Hi Richard, thanks for the reply. Originally I was keeping in contact with another mortgage broker as well. Eventually I failed to get any email replies from him and it was near impossible to reach him on the mobile. I know he was having issues with his server, but geez, this is one of those businesses that shouldn't have that much 'down time'.

I did speak to my broker regarding interest-only loans, to which he replied that he still considered it better to do principle & interest repayments. I didn't ask him to elaborate, but if I had a personal choice this is what I would have done as well considering this would be a house to hold really long term and possibly live in for a significant period of time.

However I also see the point you mentioned in going with an interest-only loan: there would be far more flexibility with payments, and if I decided to do extra repayments at any time it would effectively become a principle & interest repayment for that period of time…I'm assuming anyway.