Interest only loan repayments with an offset account.

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Dan_
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@dan_
Join Date: 2004
Post Count: 14
June 30, 2010 - 1:53 am
Wow thanks for all the responses, I believe benno79 summed it up correctly in the following,
benno79 wrote:
The repayments are calculated on the 'original loan balance', for the life of the IO loan (usually 5 years or so).
So in essence any “extra” repayments are reducing the outstanding balance of the mortgage and are locked up so to speak.
Whilst this is my ultimate goal I was trying to see if I could reduce the amount I had to pay to the bank and keep hammering the extra into the offset so the funds would not be locked up.Once the interest only period has passed, I’ll again put it back on IO and assume this will reduce the repayments as the loan balance at that time will be significantly lower.
I appreciate your assistance and responses, A great forum for information.
Thank you.
itsandrew
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@itsandrew
Join Date: 2007
Post Count: 294
June 30, 2010 - 7:08 am
Are IO loans with offset accounts typically static with their payments or do some of them adjust each month to reflect the balance in the offset account.
Andrew
itsandrew
Go as far as you can see and you will see further.
Terryw
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@terryw
Join Date: 2001
Post Count: 16,213
June 30, 2010 - 7:12 am
Most will vary each month depending on how much is in the offset account. You are being charged only interest and this will reduce with money in the offset. One exception is st g which, in one of their accounts, takes the savings off the principle.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
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Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Dan_
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@dan_
Join Date: 2004
Post Count: 14
July 1, 2010 - 5:49 am
Terryw wrote:
One exception is st g which, in one of their accounts, takes the savings off the principle.
I believe this is the offset account I have.
~~Out of interest (no pun intended) which obtains the better benefit, reducing the principle, or reducing the interest (hence IO payments will be lower so less money locked away)~~
obviously reducing the principle is best.
Apart from the obvious (being idle money) is there an issue if your offset exceeds your loan? Or does a bank not allow you to deposit anything greater then the loan balance.
Thanks again.
Terryw
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@terryw
Join Date: 2001
Post Count: 16,213
July 1, 2010 - 6:19 am
if the amount in the offset exceeds the loan you will not, usually, be getting paid interest, so it would be better to put the excess funds somewhere else to get a return on them
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email Me
Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
number 8
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@number-8
Join Date: 2010
Post Count: 333
July 1, 2010 - 6:38 am
STG have the old system that does not calculate your interest daily, rather it is a static figure that is calculated at the beggining of the year. This is not good if you have a large amount of money in an offset account.
http://www.birchcorp.com.au
Dan_
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@dan_
Join Date: 2004
Post Count: 14
July 1, 2010 - 6:44 am
Terryw wrote:
if the amount in the offset exceeds the loan you will not, usually, be getting paid interest, so it would be better to put the excess funds somewhere else to get a return on them
Just as I thought, Thank you Terryw
Dan_
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@dan_
Join Date: 2004
Post Count: 14
July 1, 2010 - 6:49 am
number 8 wrote:
STG have the old system that does not calculate your interest daily, rather it is a static figure that is calculated at the beginning of the year. This is not good if you have a large amount of money in an offset account.
So if this is correct they will only recalculate the figure at the start of a new year?
this is not ideal as I have almost a 1:1 ratio with my offset.