weekly repayments question

Hi. Don’t panic there! You are indeed correct. I think you will find your ‘loan term’ has dropped significantly over what the initial loan agreement said. Your interest will indeed be being charged daily, and you get the overall lump calculated each month. To give you an idea, a loan for say $250000, taken over 30 years, paid weekly or fortnightly (same effect) instead of monthly will reduce the loan term by around seven years without you making any other additional repayments. Have no idea why some people still pay monthly on a principal and interest loan. Additionally you get the advantage of gaining ‘extra’ repayments as of course there are several months with more than four weeks in them….so you gain a week every now and then. Hope that is not confusing, but tht is the ‘simple’ version, rather than the ‘technical’ one. Keep chipping away at that loan! [strum]

Scruff

Your assumptions are correct as has been pointed out already however trust me there is a difference between making payments weekly or fortnightly. (small as it may be)

Believe it or not there are still one or two lenders who still calculate interest on quarterly rests but thankfully they are few and far between.

I guess one immediate question is why have your PPOR loan set up as a P & I loan when ideally it should be an interest only loan linked to an 100% offset account (with interest calculated daily).

Maybe bring this up with your lender in the morning especially if you are looking at increasing your wealth through property in the near future.

Cheers

Richard Taylor
Residential & Commercial Finance Broker.
Licensed Financial Planner. Ph: 07 3720 1888
[email protected]
Looking for life cover – We Guarantee to beat any quote you have in writing.

Scruff

Switching the loan to interest only will not stop you investing in further IP’s and in fact will probably assist in your serviceability model.

Another important consideration is if you ever decide to move and want to retain your current PPOR as a IP. The Tax deductible interest is lost and whilst action can be taken to reverse this is a relatively expense exercise.

Also check with your Bank tommorow that your loans are not X collateralised as whilst sometimes this is inevitable it will cause you problems down the track with your future borrowing. Needless to say most Banks are keen to get their hands on all of your security.

Cheers

Richard Taylor
Residential & Commercial Finance Broker.
Licensed Financial Planner. Ph: 07 3720 1888
[email protected]
Looking for life cover – We Guarantee to beat any quote you have in writing.

Hi Briscon

The recomendation is not for everyone however is 2 fold in its execution:

1) An interest only loan with an offset account involves a lower monthly repayment. When serviceability is tight and a client is looking to increase their wealth through further IP acquisitions the difference in repayment can make a difference in the amount you can borrow.
2) This would have to be the most common question we get asked.

“We are paying off our home loan but have decided to rent it out and we want to buy a new PPOR but havent got much interest to deduct”.

The problems comes in the fact that the only interest you can deduct on your existing PPOR is that charged on your current loan balance. You cannot redraw or increase your borrowing to top up as this clearly fails the ATO’s Purpose Test.

The interest on the new loan you take which will be your new PPOR is not tax deductible and the shift in balance is incorrect.

By correct structuring from day one the problem is alleviated.

There are of course other actions you can do to correct the situation when you have paid of your PPOR and want to rasie money and claim the full amount of interest as a Tax deduction and then use these tax deductible funds as a deposit on your new PPOR and these are covered in our recent newsletter.

Cheers

Richard Taylor
Residential & Commercial Finance Broker.
Licensed Financial Planner. Ph: 07 3720 1888
[email protected]
Looking for life cover – We Guarantee to beat any quote you have in writing.

Hi Scruff,

You can always load your statements into a spreadsheet or one of the better mortgage software packages out there, and check the bank isn’t overcharging you.

Some of the better software packages give you reports that show you how much interest you will save over the life of the loan, and how much quicker you will pay it off. They let you play with the repayment amounts, offset accounts, etc.

I use a the mortgage checker by http://www.HomeMoneyManager.com which I find really good (I just import my statements one every 6 months), or just do a search for “Mortgage Audit Software” on the web to find others.

A small error at the start of the loan can compound into thousands over the life of the loan, so worth doing a check every 6 months or so, and keeping on top of things.

Cheers,
Marty

Hi Srini

If you live in a PPOR and then decide to buy another one and rent this one out you may use it as security however are unable to claim the interest as a Tax deduction due to the purpose of the funds being no qualifying.

One way around this is to consider selling your PPOR to an HDT and borrowing the full amount of the valuation.

Assume property is valued at $400K you can borrow the full amount although will pay stamp duty on the transfer. The total amount of interest charged on the loan becomes Tax deductible.

There are a few other tricks of the trade and will appear in my next newsletter.

Hope this makes sense.

Cheers

Richard Taylor
Residential & Commercial Finance Broker.
Licensed Financial Planner. Ph: 07 3720 1888
[email protected]
Looking for life cover – We Guarantee to beat any quote you have in writing.