- Terryw wrote:Thats true. No good having an offset account if you are a spender.
This will be a real test of discipline I guess…to put the money there and not spend it except if necessary for daily expenses and emergencies. I'm sure there's lots of people out there who promise to save and subsequently don't, and I might be one of them. Thus far however (even before getting the mortgage) I've been a pretty good saver, with a big purchase only sporadically, rather than an impulse-buy sort of person. Again, only time will tell.
The mortgage broker will be sending me two separate spreadsheets allowing me to calculate repayments if I were to do an IO loan or P&I loan, so at least I have some guidelines as to how much money to leave in the offset account if I were to save as though on a P&I loan. Because of the way I spend there's usually a good amount of savings sitting in my account at any one time, and staying with parents does help a lot too.
I really agree with StumpCam. Make those extra dollars count and pay off that principle. I've popped back onto the forums to test the general sentiment about property investment (and seems quite positive) to see if I should get another property, rip down the current one and build house/duplex/units or go into shares. I wanted to know if the people chanting Australian property collapse is likely and if I would lose my equity. If the worst did happen, at least I wouldn't be left owing the bank lots of money like those high and dry with interest only. But looks like that is not going to happen.
My wife and I get paid directly into the offset account. Each $1000 in that offset reduces the interest payment by approx. $0.20 per day. That is $0.20 per $1000 per day being paid off on the principle. Doesn't sound like much but we are up to $12 per day after 1.5 years. More is paying off the principle that way than the P portion of P&I. There's the motivation.
I've been wanting that large TV for the last 4 years but can't quite bring myself to spend $4K when that's almost a $1 per day I would be missing out on. It's quite sad, I think of everything that way now
Just to clarify, I'd certainly keep my loans IO if they are investment only and there's private debt hanging around as well. It's just that fword is going to live in it for quite some time after renting it out. I'm pointing out that there isn't much difference in the first few years.
It's when you just have investment debt and no private debt it becomes a dilemma with P&I vs IO with offset. I had my investments as P&I for a decade and somehow we just made the extra payments without struggling too much. I then decided it would be better to switch to IO and start salary sacrificing into super instead. It took me a couple of years to get around to increasing my salary sacrifice, but in those two years, the offset accounts seem to be magically staying the same, ie they didn't increase by the amount of principal I wasn't paying any more. It's some form of financial/psychological osmosis that expenditure seems to expand to fill your income.
I'm now salary sacrificing to the limit. It makes more sense than paying principal when you're near to retirement age.
That's not necessarily the best route for everybody either; it can be more beneficial to stay IO simply to increase your borrowing capacity to the limit so you can buy more properties. I've done various simulations of comparing salary sacrifice vs gearing into more property. You can feed in whatever you like for growth and interest rates etc, but gearing usually wins by a big margin.
I guess what I'm saying is it's not clear cut; it's all dependent on your situation (eg age, presence of private debt etc), your tolerance for risk and your discipline.
Kramulous wrote:I've been wanting that large TV for the last 4 years but can't quite bring myself to spend $4K when that's almost a $1 per day I would be missing out on. It's quite sad, I think of everything that way now
K we also waited for years before getting our new LCD Sony Bravia (only 42") but we just used Harvey Norman vouchers from our credit card. We pay all bills, food, rates & insurances on IPs etc through that card and after about 5 years we built up enough for the TV. This way we didn't have to feel guilty!
The TV is so much better than our old cathode ray tube based TV, but now we want a bigger one! Sigh…
cheers, s/cI know this post is a little bit ancient now, but wisepearl (or any others out there!) if you still have a financial planner in Perth could you please give me some contact details/further info as your profile says you are not accepting emails.
Thanks
Natasha
Sigh…
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