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Unless you can seriously find a better interest rate that would save you say $50 a month then why not have the ability to offset if necessary?
The issue here isn’t what it does in the first month (which is the basic calculations you have been shown), but what several months of savings would do.
In the above example lets say that of the $7600 income you also had to pay on average about $4000. Only $3600 you save, and only saving a pittance on the first month’s interest amount. Of course though the next month you save a further 3600 which makes it $7200 offsetting the loan amount. Instead of the interest of 6.19% being calculated on $142,602 at the end of the second month it is more like $136,509. It would be hard to find a short-term interest rate of 6.19% or higher and of course you cannot be taxed on this amount since you are reducing a loss [biggrin]
Over a 12-month period in the standard $938.03 per month installment you pay the bank 11,256.36, but only change the balance from $143,000 to $140,748.10. By utilising the offset account at $3600 per month you have a loan balance of $106,888.10, of course most of the gain is still in your offset account ($31,943.64). From this I calculate a gain after all this is taken into account of roughly $1920.
Now I doubt that you would seriously be placing all your rent into your PPOR account so the actual interest saved will be less unless you own outright the rentals….
By the numbers you should not continue to pay the exceedingly high interest rate on the home loan and the even higher numbers on the credit card debt.
The larger banks seem to be hovering about the 7.07%, even then the gain of switching to that rate would more than offset the fees and charges accumulated from changing loans (this is a Offset loan rate though). Just on a simple level you pay $1500 approximately less on the first year of a $200,000 loan if using a 7.07% rate over a 7.82% rate, just beware of ‘honeymoon rates’* that may jump up as high as 7.82% later…. some of those 7.07% ones can also start as ‘honeymoon rates’* as well.
The destruction of credit cards sounds good if you have problems spending up to your limit and not paying them off.
Just note that refinancing a loan may mean you need to take out about $210,000 to cover the credit cards, the previous loan and application and exit fees, on a 25 year loan and at the basic 7.07% that would still cost you about $343/wk.
* A Honeymoon Rate for those even simpler than myself [withstupid] is just an initial interest rate offered by the financial institution, usually only for 12 months before reverting to a much higher interest rate.
Unfortunately I have noting to add on the IP front though.
To sum up I would seriously consider refinancing if I were you, even though my recent personal investigations showed I wouldn’t really be better off by refinancing I am sure more informed members could point you more clearly in the right direction.
Its pretty much what I have expected, I just wasn’t certain and I wanted assistance before going to a solicitor to change the details.
That leaves me with a few options:
a) utilise the current loan but have my partner transfer her funds from a savings account from the same bank (inefficient and clumsy but low on costs)
b) go ahead and change the details, then all I have to do try to ensure I get the best loan for myself and my partner.
Thanks for the advice so far.
I think your argument would be more in the eye of the beholder.
Currently my repayments on my loan are about $930 per month, rent for the same sized property and location would be about $240 per week. So of course if I had been renting the property instead of paying it off then I would be more than paying the minimum amount off for the owner correct?
Since I built before the big rise in the housing market I have that advantage. At this point in many areas the rent has not caught up to the increase in home value, in many ways Ozboy is correct, yet in others Ozboy didn’t look at the whole picture.
Ultimately it is your choice SRE, to get the advantage of the FHOG (First Home Owners Grant) you have to live in the abode for at least 6 of the first 12 months as explained in the feb edition of the mag. After that you could use it as a stepping stone to creating a investment property portfolio.
On a work front it is usually best to work out the direction you wish to go before you select your electives for years 11 and 12.
Many suggest studying finance at uni, but your background in study suggests science or engineering. You could possibly look at an apprenticeship possibly in the engineering field, after the initial period of study you generally end up working fairly early and you do get paid in ever increasing wages until you become a tradesman. My older brother was a trademan electrician and earned way more than this IT geek has seen, up to twice as much as I did in one year.
Of course he blew that job and most of the money he earned from it but if you start now while still in school and take the suggestion of working to a Savings Plan first then that should help. Investing without a history of saving may prove to be difficult.
Set your goals, fast cars use money faster, fast food feast on your wallet and booze will always end up taking big swigs from your savings. If you do things in moderation not only will you probably enjoy yourself more than going over the top but it will have the added bonus of allowing your savings to grow ready for investment.
Hindsight for me would’ve involved not believing the manager when he said they were staying in the same spot for 7 years (lease deal length), within 12 months the company moved from Brisbane to Perth and I was left a little high and dry….finally getting on top of that 5 years later. Just remember you can never help bad luck…
$80,000 is an excellent start. Basically most lenders will charge you with Mortgage Insurance if you have less than 20% of the value of the property (this can be as little as 5% but it is not the norm) in cash or a form of deposit on the property.
You will need to realise (which I believe you do) that rent is not as high as what it would normally cost a person to pay off a mortgage with rates and everything else coming on top. Of course rent is purely a loss which means you gain nothing but a roof over your head for a very short period of time.
There is a certain sence of satisfaction in owning your own home and being able to do what you like (within reason) to it.
Here is something you can do (or anyone for that matter). Just imagine your rent over say the last 20 years was your mortgage repayments and see how much money you lost.
