Mortgage question: Extra repayments or use an Offset account?

Hi Richard, thanks for the reply. Originally I was keeping in contact with another mortgage broker as well. Eventually I failed to get any email replies from him and it was near impossible to reach him on the mobile. I know he was having issues with his server, but geez, this is one of those businesses that shouldn't have that much 'down time'.

I did speak to my broker regarding interest-only loans, to which he replied that he still considered it better to do principle & interest repayments. I didn't ask him to elaborate, but if I had a personal choice this is what I would have done as well considering this would be a house to hold really long term and possibly live in for a significant period of time.

However I also see the point you mentioned in going with an interest-only loan: there would be far more flexibility with payments, and if I decided to do extra repayments at any time it would effectively become a principle & interest repayment for that period of time…I'm assuming anyway.

Looking through the stuffy PDS manuals it appears that the offset account itself has no fees. However the offset account can only be maintained if I had a loan with Homeside. The Homeside loan itself does attract a $10 monthly fee. It's like NAB's iSaver account that can be bundled to a separate NAB account, but the iSaver cannot exist on its own or be used with an account from another bank.

When you state that I can claim mortgage interest against tax, what percentage of this interest can I claim? I also assume that I cannot claim anything against tax while I'm using it as a PPOR for the first 6 months. But when I rent it out for the next 6 months of that calender year, I can claim those 6 months of interest payments against tax?

Glad I found this place fairly early, while searching for the house. There's lots of useful info here. If I didn't read about the goodness of offset here, I would have been making extra repayments if I got a payrise, or if interest rates stayed low. I only loaned about 73% of the value of the home, so I should have instead borrowed the max the bank would be willing to give me, and used the excess for offset.

It wouldn't be surprising if I were one of the few first home buyers he's seen actually asking these questions. I've even tried asking colleagues at work questions along a similar line and all of them have no idea what I'm talking about. They know that they're using an offset account and that's pretty much it.I had a look at NAB's choice package but noticed it had a pretty hefty application fee and I think even a monthly ongoing fee. It was suggested that I consider the pro packages if I wanted to go full-on investing in the very near future. I'd actually like to do that, but after driving my bank balance virtually to zero after this mortgage, it's going to take time before the next property. So I thought to think even more long-term.It would take me a number of years to build up sufficient equity in the current house before I can take a second mortgage. By then I'll revise all options and consider going a pro package where it'd be cheaper to have multiple loans going at once. For a single loan I thought to keep it simple as possible but not discounting things like offset, which seem to be indispensable.Now of course I'm desperately hoping for a pay rise early next year. I need at least a 5% pay rise to accomodate a 1% increase in interest rates. But if the interest rates don't go up too quickly I still have a buffer to see me through at least until rates start to hit double digits!

The Homeside variable rate is currently 5.07%, and is not a 'honeymoon rate'. No application fee, legal fees $162.50, monthly fee of $10. Loan is 300-350K.

I'd be very interested to know how to recover the $375 cost (assuming it's application fee we're talking about) on a single loan.

This is what I've also planned to do with a credit card. Previously I used cash for everything and only started using a credit card a few months ago just for the sake of building up some credit history. However with the advent of a home loan the credit card has become something that I can fully abuse. The loan I'm taking up actually provides me with a free upgrade to a Gold Visa card with NAB with no annual fee and still the other benefits of interest-free days.

I'm very thankful for all the advise from the good folk on this forum and also on this thread. Based on this info I spoke again to my broker today and he encouraged me to loan as much as possible (without incurring mortgage insurance fees) and to go with an IO only loan…but only if I were disciplined enough to actually save as much as possible, he said.

Seems that most of his customers have the habit of making just minimum repayments and not actually saving into an offset account to help reduce their interest. I know myself though…and can certainly cut down the Ebay spending to NIL if I really wanted to, and have done so for a couple of months now ever since realizing what impact a mortgage would have on my life.

The situation is a bit of a funny one. The house is neither an investment nor a house I'm going to be living in, at least for the first 12 months or so. I'd like very much to stay there permanently, get down to furnishing it and actually having a place I could call 'home'. But since my old mates are prepared to put up with me for a little while longer, I might as well live with them while I still can.

The advise here has been great, and also consistent. The info here has been most useful, and I'd certainly be going for an IO loan with offset account. This has already been finalized with the mortgage broker. The whole experience of buying a first home has been a real eye-opener. Neither of my parents have ever taken a loan here, so these concepts would cause even them to raise an eyebrow, but I think I've understood them sufficiently to decide it'd be the most beneficial thing to do.