If i take an interest only loan for 10 years
borrowing 200k and soon as the loan settles
i put 100k back into the loan (for redraw)
Do i have to make set i/o repayments based on the
200k even though the balance is only 100k and
i am only being charged interest on the 100k every month ?
And does my amount available for redraw reduce
if I reset my direct debit to cover only the
interest on the 100k?I hope this makes sense .I am confused.
I initially thought that i would only be debited
with the interest on the Loan balance every month.Yes. Your repayments will be set on the original loan amount. You can apply to vary them.
The interest levied will only be on the outstanding amount. This means that the loan repayment will have a higher principal component.
If you want to just pay interest on the outstanding amount then may I suggest a Line of Credit (LOC).
Cheers,
Simon Macks
Mortgage Broker
http://www.mortgagehunter.com.au
0425 228 985NODOC Loan – 65% Loan – No questions asked!
Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
Thanks simon
Does that mean that with the repayments set at
the 200k loan size i am paying off principal
but not increasing the size of my 100k redraw?Same thing. Any extra you pay off the principle ahead of schedule is available to redraw.
Be very careful with redraw. Can have significant tax disadvantages.
Investigate offset as well.
Cheers,
Simon Macks
Mortgage Broker
http://www.mortgagehunter.com.au
0425 228 985NODOC Loan – 65% Loan – No questions asked!
Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
Simon I think you may have misread the question.
If you have an interest only loan for $200,000 and then repay $100,000 then the repayments will be based on $100,000. Therefore, if the interest rate was 6% then the repayments would be $500 p/mth. If you redraw $50,000 and balance is up to $150,000 then repayments would increase to $750 p/mth. An interest only loan with redraw is like a line of credit.
If the loan is principal and interest then the dollar amount of repayments is set on the original loan amount and does not vary based on outstanding balance.
I hope that makes sense.
Cheers
Stu
Stuart – you are right [blush2]
I was describing a P&I loan.
Sorry folks for the confusion. Thats the second mistake I have made this year [eh]
However do ensure you know whe to use offset vs redraw. I have seen peoples errors cost them a lot.
Sorry again[blush2]
Simon Macks
Mortgage Broker
http://www.mortgagehunter.com.au
0425 228 985NODOC Loan – 65% Loan – No questions asked!
Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
Thanks Guys
i have been speaking to Adelaide Bank and they
are telling me a different story.They say that if i took a loan for 200k interest
only and repaid 100k at settlement even though
the interest will be charged only on the 100k, if i didnt make my repayments based on the 200k my
100k which was available for redraw will reduce
every month.
If i made my repayments based on the 200k(but my balance was 100k), my principal owing would reduce but my amount available for redraw stays at 100k.Does this make sense to you guys?
What they are saying is that a term loan operates
this way even if it is only interest only.PP-
If it was me i’d investigate the L.O.Credit loan, although i believe that some of the Offset Accounts are now just as good,you sound confused (Courtesy of the Bank) re your loan..
Best bet IMHO is to speak with a mortgage broker re: your options.Getting it all right at the beginning will save you down the track, work out what our strategy is, what do you want to do with the extra $100k ? What are your Goals….
Maybe give Simon a call…
REDWING
“Money is a currency, like electricity and it requires momentum to make it Effective”
Count The Currency With This Online Positive Cashflow CalculatorPP that is true.
Although the repayments will be based on the $200K whatever you didn’t pay would come out of the money you have in credit.
This can mess up your tax though.
Using redraw money for interest repayments may confuse things greatly for the ATO – please confirm with an accountant.
Cheers,
Simon Macks
Mortgage Broker
http://www.mortgagehunter.com.au
0425 228 985NODOC Loan – 65% Loan – No questions asked!
Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
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