All Topics / Finance / Should i use the offset account?

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  • Profile photo of Jamie MooreJamie Moore
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    April 15, 2013 - 10:32 pm

    Hi Luke

    The property might increase in value over time, you might renovate and manufacture equity or there could be a combination of both.

    Cheers

    Jamie

    Jamie Moore | Pass Go Home Loans Pty Ltd
    http://www.passgo.com.au
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    Mortgage Broker assisting clients Australia wide Email: [email protected]

    Profile photo of thorpef1thorpef1
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    April 15, 2013 - 10:53 pm

    Thanks Jamie.

    So:

    Variable IO Loan – $152,000

    -Offset attached

    Fixed IO Loan – $152,000

    Currently my monthly repayments are $1703.

    If i move to IO and put all i have into the Variable Offset, my repayments should drop down to about $1160/month.

    Then, this extra $500 will be put into the Variable Offset, aswell as any other spare cash i make.

    Over time i will be reducing my monthly repayments as i add more into the Offset.

    Pretty much the money that usually goes towards the principle will go into the offset so the money is more liquid in the offset rather than using a redraw facility.

    Does this sounds like i have it under control?

    Thanks,

    Luke

    Profile photo of thorpef1thorpef1
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    April 18, 2013 - 10:17 am

    Hi guys.

    Today i changed both of my loans to IO.

    I will be using the MISA/Offset account with the Variable account.

    Thanks for all your help,

    Luke

    Profile photo of Richard TaylorRichard Taylor
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    April 27, 2013 - 10:24 am

    Hi Luke

    Coming in late in the conversation couldn't help hearing the word MISA which means it is a Com Bank loan.

    I would check and double check with your Broker / Banker it is the right type of MISA account as on that size loan you certainly aren't getting top rate discount so would want to make sure it is a modern day MISA and not the old non transactional style.

    Cheers

    Yours in Finance

    Richard Taylor | Australia's leading private lender

    Profile photo of TerrywTerryw
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    April 27, 2013 - 11:46 pm

    Oh no the miser account with that miserable bank!

    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

    Profile photo of CattleyaCattleya
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    May 4, 2013 - 3:08 pm

    Terry,

    Interesting post there. Would be interested to know your reasons / thoughts.

    I usually pay principal as well. This is because, at the end of my 25 mortgage I will be… well in my 60s or 70s (hate to give out my age.. lol).
    So if by then my mortgage is not paid off, presumably no body is going to give me homeloan anymore because my work / productive time is but over.
    In that case then I have to sell the house and hopefully the proceed is enough to pay off the loan and buy something else.

    The problems with that are:
    1. I may like my house too much to move out. Or for some other personal reasons, don’t want to move out.
    2. Given the share market spectacular crash in 2007 / 2008, it is not impossible that property market also crashes. And given the recent development in finance industry, any thing can happen. Raiding on saving accounts in Cyprus is not illegal, ECB and Bank of England both contemplating negative interest rate … meaning people have to pay the banks for keeping their money in there..??? Ridiculous… but not impossible.
    3. Even if property market does not crash, inflation may eat up most of my capital such that there is simply not enough to pay off existing loan and buy another house.

    Hence I always pay interest + principal. Look fwd to your wisdom.

    Thanks
    Catts

    Cattleya

    Here to learn the ropes of property investing & share knowledge, not trying to sell anything at all.

    Profile photo of CattleyaCattleya
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    May 4, 2013 - 3:15 pm

    Your equity would be from the price increase.

    So if I buy at $1 mil with a deposit of $200k, my equity is $200k
    A year later I order a valuation and it is valued at $1.2mil, then my equity becomes $400k.
    This assumes price increase. When market crashes you can end up with negative equity.

    But I also share your scepticism. But my concern is more towards the end of the mortgage term when I have to repay all loan amount.

    Cheers,
    Catts.

    Cattleya

    Here to learn the ropes of property investing & share knowledge, not trying to sell anything at all.

    Profile photo of CattleyaCattleya
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    May 4, 2013 - 3:16 pm

    Sorry – hadn't read this far when posting my reply.  Sorry, Catts.

    Cattleya

    Here to learn the ropes of property investing & share knowledge, not trying to sell anything at all.

    Profile photo of TerrywTerryw
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    May 5, 2013 - 12:28 am
    Cattleya wrote:
    Terry,

    Interesting post there. Would be interested to know your reasons / thoughts.

    I usually pay principal as well. This is because, at the end of my 25 mortgage I will be… well in my 60s or 70s (hate to give out my age.. lol).
    So if by then my mortgage is not paid off, presumably no body is going to give me homeloan anymore because my work / productive time is but over.
    In that case then I have to sell the house and hopefully the proceed is enough to pay off the loan and buy something else.

    The problems with that are:
    1. I may like my house too much to move out. Or for some other personal reasons, don’t want to move out.
    2. Given the share market spectacular crash in 2007 / 2008, it is not impossible that property market also crashes. And given the recent development in finance industry, any thing can happen. Raiding on saving accounts in Cyprus is not illegal, ECB and Bank of England both contemplating negative interest rate … meaning people have to pay the banks for keeping their money in there..??? Ridiculous… but not impossible.
    3. Even if property market does not crash, inflation may eat up most of my capital such that there is simply not enough to pay off existing loan and buy another house.

    Hence I always pay interest + principal. Look fwd to your wisdom.

    Thanks
    Catts

    Hi Catts,

    I would make sure the money you would have paid off the principal is parked in an offset account. This has 2 main effects
    1. It saves the same amount of interest as if you paid down the loan, and
    2. It is better from a tax POV if you need to use that money for private expenses.

    In your case if you had paid down all of your loans at age 80 and cannot get another loan at that stage you would be stuck with the existing situation at that time.

    With my method you would still have a large sum of cash on the offset and could go and and buy another property or 2 (depending on the values compared to the cash at that time).

    But, nothing wrong with your method, everyone has their own little techniques.

    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

    Profile photo of qlddkqlddk
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    May 5, 2013 - 2:47 am

    Hi folks

    Im with cattleya on this one, I prefer to pay off the loan…

    But here is the deal, I have property under a trust name, and my finance bank (RAMS, beware of this) does not allow an offset account for loans under trust names.

    So what now? I'm holding excess cash in a high interest account, but should I to gain that extra 2% interest effect, put it into the loan and redraw in time?

    I doubt refinancing is an option right now.

    (which banks allow offset accounts for trust loans?)

    thanks

    Profile photo of TerrywTerryw
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    May 5, 2013 - 3:03 am

    Most banks allow offset loans for trusts.

    If you pay down the loan there will be tax consequences if you redraw.

    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

    Profile photo of god_of_moneygod_of_money
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    May 5, 2013 - 6:06 am

    CBA will come into full functional "offset"  account in August.. 

    CBA is the leading lender in Australia… not sure why so many people choose CBA?

    I am with ANZ Breakfree.. and they charge me A$ 10/month for > 1 offset account

    Profile photo of s0805s0805
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    May 6, 2013 - 10:50 pm
    god_of_money wrote:
    CBA will come into full functional "offset"  account in August.. 

    CBA is the leading lender in Australia… not sure why so many people choose CBA?

    I am with ANZ Breakfree.. and they charge me A$ 10/month for > 1 offset account

    god_of_ money,  can you pls confirm if ANZ is charging this 10/month for > 1 offset account….. monthly or yearly.

    cheers

    Profile photo of god_of_moneygod_of_money
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    May 6, 2013 - 11:00 pm

    monthly… ANZ Breakfree package comes with only 1x ANZ ONE offset account

    Profile photo of Jamie MooreJamie Moore
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    @jamie-m
    Join Date: 2010
    Post Count: 5,069
    May 6, 2013 - 11:43 pm
    s0805 wrote:
    god_of_money wrote:
    CBA will come into full functional "offset"  account in August.. 

    CBA is the leading lender in Australia… not sure why so many people choose CBA?

    I am with ANZ Breakfree.. and they charge me A$ 10/month for > 1 offset account

    god_of_ money,  can you pls confirm if ANZ is charging this 10/month for > 1 offset account….. monthly or yearly.

    cheers

    One offset is included for free under b/free package. Additional offsets are $10 per month.

    Cheers

    Jamie

    Jamie Moore | Pass Go Home Loans Pty Ltd
    http://www.passgo.com.au
    Email Me | Phone Me

    Mortgage Broker assisting clients Australia wide Email: [email protected]

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