Forum Replies Created
- Originally posted by MortgageHunter:
Some very attractive rates under 6.5% are available with 100% offset accounts.
Cheers,
Simon Macks
Mortgage Broker
http://www.mortgagehunter.com.au
0425 228 985Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
But are the actual interest rates themselves as good as some of the straight variable interest rates?
A quick comparison shows that some rates are lower if a straight variable, but some others are basically the same rate. So offset have almost completely caught up to variable loans in my opinion. I’d say the main disadvantage between offset and straight variable is the ability to fix the rate after the initial introduction period of the loan. Is that correct Simon? or has someone come along and started fixed-rate offset loans that can be fixed for say 5 years?
The benefits is the direct reduction of the principle with the amount in the account. To look at this closer it would be the same as having the same amount in another account that got paid the interest rate of the loan, say for example 7%, but instead of being hit with tax on the interest there is no tax on it. So for every $ offset through the savings made in interest the governement cannot take their ‘share’ of it.
Many offset accounts do have minimum account balances before allowing offset amounts to start. an example would be $2000, if on a particular day your account did not have $2000 or more in it then none of the amount less than $2000 would count, but if you had more than $2000 on any particular day then the whole amount would count (if the account is 100% offset). Lets take a look at a generic situation:
Over a 1 week period, a loan has a balance of $110,000, the first five days you had an offset account balance of $10,000, the sixth day you withdrew $9,000 for payment on a second car and on the seventh day you received pay from your work of $1,500
Daily Interest = (110,000 – (offset if bigger than 2000 else 0))*(0.07/365)
In each of the first five days interest came out to be $19.18, the sixth day since none of your offset could be counted that day your interest was $21.10 but on the seventh day with the inclusion of your pay bringing you back above $2000 the interest was $20.62.Do note like a savings account you still have full access to the money in the offset account. There is no savings account interest charged on the amount since it is reducing the amount of interest being charged on your home loan. Also the example shown was a rough example, rounding up and whether the bank uses minimum daily or end of day balances might be left to those who know the workings of banks in general. I think mine works off the balance at the end of the day.
Some mortgage offset loans also include a free redraw facility (redrawing is the ability to gain access to money saved over the normal payment scheme of the loan in simple terms). Usually requires a minimum amount to be redrawn from the loan, but offset accounts by their nature can help you knock off loans quicker than a standard principle and interest loan would leaving amounts you can get access to if you need it.
A disadvantage is that these loans may not have the absolute cheapest interest rates around and few banks allow the fixing of interest rates apart from the initial ‘honeymoon period’ of some loans.
Hopefully I haven’t made any errors in this and it will help you in deciding if an offset account is for you.
You seem transfixed on the “technical” definition for which you are CORRECT, are you an accountant?No, I don’t mind dealing with numbers and did bookkeeping as a subject in my junior highschool component for two years but hardly ‘an accountant’. The terminology when talking to newbies or when newbies are involved in a forum is important. They may not understand the basics of ‘Assets’ and ‘Liabilities’ and even if they have touched on them calling a block of land you own a liability would not really help inform them of anything.
If for example the definition had been given:
‘that even though land is classed as an asset I would still class it as a liability as it is losing you money in the short-term and it isn’t really working for you in my opinion’, then there is nothing wrong with that. Its your opinion and is valued on this board as such.
The fact is that the land is an ‘asset’ technical or otherwise. The real answer in this thread is that yourself and Russh, I believe classify the $35,000 in cash leftover from selling the land is worth more than the $50,000 in equity in the block as it has an associated liability.
But if you are happy your way so be it, dont let me change it in yr quest to accumulate unlimited -ve geared assets
At no stage did I say I was leaning towards -ve geared assets and nearly all my comments were in fact ways to turn the property +ve.
Originally posted by Sibo:Sorry for that previous botched quote. I agree with RussH regards asset definition. If it costs you money its a liability. That way, accruing assets means becoming more financially secure. A person with a moderate income and running ten cars may not be secure due to enourmous maintenance costs. this definition makes assets a desirable thing to acquire.
Regards,
SiSo under this warped definition only cf+ properties are assets and cf- properties are liabilities?
I guess you guys are the glass half empty types?
LOL….. yr non blinkered ideas have basically been covered by the people with blinkers on.I would agree with Russ (which is Rich Dads definition) of what an asset and a liability are.
So someone suggested building a new building and then selling? Sorry, I didn’t read that anywhere. Or in fact subdividing and creating multiple rentals using the relocated house idea? Really? where did someone post that?
As for the definition of an asset or a liability it is basic bookkeeping. Not some book, even if relevant to some people, who has some differing version.
Asset (meaning): Accounting. The entries on a balance sheet showing all properties, both tangible and intangible, and claims against others that may be applied to cover the liabilities of a person or business. Assets can include cash, stock, inventories, property rights, and goodwill.
Liability (meaning): The financial obligations entered in the balance sheet of a business enterprise.
In the above case of a land with no income it is an Asset (Land) with an associated Liability (rates). This still has potential for growth (CG +ve), but not a very efficient method of making money.
Originally posted by RussH:Land is not an asset but a liability.If something costs you money and has no return then it isa liability.
Sell the land and invest the nmoney on a +cf property.
An asset is something that makes you money.i.e a cash flow + property.
RussAn asset is anything you own, regardless of whether it makes you money or not. Your blinkers have shown to far this time RussH.
An example is cars are classed as an asset, they cost you money the run AND depreciates (in general), but they are still useful.
No information had been given on the area the land is in, the size of the block, whether in fact it could be sub-divided or an active rental market in place. Even the purchase price may have been helpful to know when looking at what is possible.
Several options would exist:
– sell the land if he has a mortgage to pay off. Put the cash to work on reducing the interest while preparing to use the equity to find a cf+ place (probably what RussH is talking about)
– use the equity in the land to get you loans on cf+ places. This is an option if you want to turn this to a investment property as well, some suggestions like a relocated house and turn it into an IP is a good option.
– if not rental but a buying and living area perhaps use the equity to build a house on it and sell it off. Look for comparable blocks with a house size you are prepared to build and find out its value. Even in this case you could rent it out, but probably not as beneficial as the cheap relocated house and other IPs option.
– if the block is large and you can sub-divide then perhaps this is the best option. You could possibly even relocate a few houses on a couple of the sub-divided blocks to get you a decent rental income, most probably end up quite cf+ in the end too.
– lets say it is a large block but no plans of sub-division currently and you don’t want to build or relocate a house at this point in case of a sub-division plan later on. Then at this point it is an Asset with an associated Liability (usually in the form of rates). If you believe the value will increase (capital gains +ve) and you could ‘rent’ the land out to local farmers, (for horses this is called agistment I think) for roughly the value of the rates each year. You can still draw down on the equity to get yourself some IPs and since you have more equity to invest in IPs than cash if you do sell it then obviously keeping it would help. Still rent from a cheap house outweighs by far rent from a farmer for livestock or horses to graze on….
Just a few non-blinkered ideas [rolleyesanim]
A bit more info would probably help btw [biggrin]
Would certain types of Trust Funds work in this situation? Since the person isn’t gaining an income from the two IPs I was thinking of rolling the properties into a trust. Of course this might be quite nasty to start with since there will be plenty of fees involved in this situation and I am not sure of the assets test of those with trusts, but is it still an option?
I thought the whole idea behind LOC is that you pay the amount back at your own leasure? Interest will always be charged and added to the full amount of the loan.
I can’t see how the bank can ask for ‘arrears’ when the dynamic nature of the loan would continually show interest accruing on it.
CG or capital growth is one of the things people look at with a -ve geared property. Also if built after a certain date (1986?) you get depreciation back as well as other tax deductable components. So what may initially look like a -ve could manage to be neutral or +ve.
Just make sure that you have done your research before doing either.
Originally posted by HHH:I assume you meant “+ 15000” in your example?[cap]
Maths has a law called BOMDAS (or BODMSA, it doesn’t matter much the MD and SA components of the law whichever appears first in the list in an equation) Brackets of Multiplication, Division, Addition and Subtraction. Your offset account in my example is used to reduce the loan amount (120,000). The result of the transaction inside the brackets left you with 105,000 and meaning you had 145,000 leftover from the 250,000.
If that is the case then cool, I would not have thought so as the money could be gone tomorrow, where as “real” equity in a home is not that easy to “lose” – the lenders risk would be increased if they treated the cash sitting in an offset account as equity.It seems different to me than savings as typically those savings would be taken by the bank as say the deposit, yet the money in the offset would be staying, potentially even spent?
HHH
The difference between an Offset and saving is not alot. One gets paid interest (supposedly) on the amount in the account but the holder still have free access to draw money whenever they like and the other definitely (provided you don’t go below say 1,500 – 2,000 in hte account) saves interest being charged on the loan for the time the money is in the account, the holder still has free access to draw money whenever they like.
Interest on savings accounts will get taxed but the interest saved by using an offset account cannot be touched by the government. [thumbsupanim]
culclationsHmmmm, almost a word. [eh]
https://www.propertyinvesting.com/forum/topic.asp?TOPIC_ID=8801
This thread might be helpful for you. One of the forumers has a site which does most of the culclations for you.
In this case HHH:
Equity = Value of house – (loan – offset)
An example would be a offset loan with a current balance of 120,000 and 15,000 in the offset account. The house was valued at 250,000.
Equity = 250,000 – (120,000 – 15,000) = 145,000
Just remember the money in the offset account is basically money that would otherwise be in a Savings Account.
The exact ‘process’ would be best followed up with the executor of the estate or another that deals directly with deceased estates and wills.
From what I could find on the QLD Office of State Revenue, if you were a person given the land in a will or for example a child of the deceased then no Transfer Duty would usually apply when it comes time to appropriate.
You’ll receive more relevant articles if you use ‘deceased’ and ‘deceased estate’ than ‘inherit’ in searches on the relevant Office of State Revenue for you.
How long ago did you deal with ANZ? Generally when using a broker they have a department dealing with the client, its called Originator Services I believe. Not the best way of dealing with a bank but I was never told to deal with the firm that brokered the loan to start with.
I ended up dealing with a local Branch Manager who was extremely helpful when sorting out some minor changes to the loan I wanted done recently. I keep forgetting to write a positive letter to ANZ on the manner this chap handled what we wanted done.
Originally posted by abhjf11642:
This is my first time on the forum and I’m a bit nervous about how silly I could make myself look!!That would be hard considering you didn’t start off like:
“HI I AM NEW HERE AND I WOULD LIKE SUM ADVISE”
The rest of your post sounds fairly close to the 11 second rule as discussed. Still do your research though.
Even though you say you are selling two places, the terminology suggests you haven’t done so. Do you know how much equity is available to you in those places and if that would be enough to keep you ‘travelling happy’?
Without actually having the figures in front of you and working out whether the 3 or so IPs you seem to have will be a +ve geared or excellent CG earners for the future. If the places were +ve geared then little reason to sell the places but rather use the equity. I’m sure someone has a better idea but a few facts are missing before we could give you a good course of action.
Firstly, if you plan to live in the house in the long term and not trying to use it for immediate equity then why worry about what it is worth in 12 months time? Your PPOR has to be affordable and a nice place to live for you. If the house meets that rule and you are not looking for equity in it immediately then think if it will be worth more in several years time?
I’m not sure on the actual figures but I am sure the Darwin market went through a bit of a mini-boom in the late 80s and early 90s when the military started shifting assets up north rather than sitting about in Brisbane, Sydney and Melbourne.
The recent and successful running of the Adelaide to Darwin train line also is linked to interest in investment in properties in Darwin, mostly to do with increased shipping and port access. Maybe investors are reacting to this?
The situation doesn’t look bad for Darwin in the near future so it seems to be just a matter of research. Buy on what you think is best as if you are not happy with it then its hard to ever feel ‘settled’.
Originally posted by redwing:Wish FHOG was around when i Purchased..[angry2]
And I suppose you wish GST was around when you first purchased your house as well? [evil4]
Originally posted by Rugbyfan:Knowing how greedy both the WA and QLD state governments are, I dare say it will spread in time.
Depends if ‘Hollywood’ Beattie wants to spend hundreds of millions of dollars on another football stadium again or not…
This new tax is NSW’s method of playing ‘catch-up’ to other states since the tax will take $ (indirectly) out of the GST fund given to all states later. They have a beef with the federal government over this and this is their petty method of getting back at the federal government.
Don’t ya just love politicians? [hmm]
