Thanks for all your responses, guys!

@pascoe: Agree, I probably overcomplicated it and in the end we’re probably discussing about max a few $100 difference anyway. But also wanted to get feedback if my thinking is correct. And I don’t think the interest on a savings account is that much lower. I get 3.15% at RAMS right now and the loan was 3.69% in the end (variable would have been 4.17%). And a savings account is not the only option for where to put your money. Definitely, saving tax is no motivating factor. Otherwise, I could just give all my wealth away and quit my job – wouldn’t have to pay any tax then ;-)

@benny: Yes, agree flexibility is a key aspect. But I think it is not limited by not having an offset account. I still don’t have to pay down the mortgage, but I can rather put the money into my savings account. OK, I get less interest on it, but also I don’t have to pay additional interest on the variable portion of the loan (As per the calc above).

@ethan: Good thought, I also played the scenario of continually dropping interest rates through, just didn’t put it my post here. The conclusion I came to is that the interest rate differential is 0.48%, so that is almost two fully passed on rate reductions. Since I only fixed the loan for 2 years and I’m saving money as long as the fixed rate is below the variable rate, keeping it variable would mean that I only break even if there are 4 fully passed on rate reductions in the next 2 years (similarly as above assuming equal intervalls for each reduction). I guess even with an extremely positive outlook (or negative if you think from an economy perspective) that is not very likely to happen.

Thanks Colin. But isn’t the saved interest in an offset account not also technically taxed? If your property is positively geared, you pay tax on the surplus, if it’s negatively geared you reduce your taxable income by the amount of the loss. So, if you pay less interest on your loan due to savings, your property gets more positive or less negatively geared and hence you technically pay tax on these interest savings as well, no?

• This reply was modified 8 years, 3 months ago by  Bjoern.

Thanks guys, will definitely have a look at the book. Talking about offset accounts, brings me to another question, but maybe it’s better to post this in a separate thread since it’s a different topic. I am just about to buy my first property and decided to fix the whole loan, i.e. not having any part of it on a variable rate with an offset account. In short the reason was that the gap between fixed and variable was too large and the gap between variable and my savings account too little to justify the extra interest paid on the component of the loan that pays the higher variable rate or I would have to put that much money into the offset account to break even, that it is rather unrealistic.

Thanks, storybuilder. Makes sense. So you can’t do that forever, but maybe once or twice? Would still save a lot of money.

Haven’t heard from anybody else, but I decided not to go ahead with them. First, I heard from so many sides that you shouldn’t invest in new developments and they solely propose new developments. Second, I asked them if, on top of the fee that I would pay them, they get commission from the developers and they do, so I didn’t like that they are not entirely working in my interest. And lastly, my last experience when I was in touch with them ultimately convinced me not to go ahead with them. When I questioned the above, they got rather aggressive saying things like “I am trying to be patient but you don’t seem to be getting who we are and what we do” and “I can’t work with people that are not motivated”. Not the way you would expect, I think.
But that’s only my opinion, might be wrong in the end, but I feel more comfortable going other, more conventional ways.

Thanks Benny, guess I underestimate the effect of deductions a bit ;)