Hey guys, I have been viewing some properties and interested in a view, the real estate agents keep contacting to see if we are interested. I feel like I can make an offer and negotiate below the asking price, what is the best way to do this verbally ? Over the phone or write an email???
It’ll be great to get some insights on thisThank You
Just start with an informal chat about the sellers motivation, if any offers have been put forward, etc. Just try and gauge how much it might go for and then provide a formal offer.
The process depends on the state you're in as well. For instance, in ACT you might get away with a verbal offer – but in a heated NSW market, they may want you to sign a contract with a cooling off period.
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
I always prefer email as it’s always in writing.
I’ve only ever had the first offer accepted once but I always offer a ridiculously low offer with some valid points ie old hot water system, concrete cracking and bad neighbourhood etc the agent has to legally pass the offer on according to their legislation. They normally come back with an counter offer and than you normally negotiate of that. Just make sure you know the market and facts about the area. No agent is going to listen to you if you dont have factual information about the area. I personally believe in talking to the agent verbally or by phone. Hope this helps
Tony Fleming | Triumphant Property Group
http://www.triumphantpropertygroup.com.au
Email MeNSW Buyer's Agent specialising in Western Sydney-Blue Mountains-Orange-Albury
Thanks Jamie I also had a read on your article with Loan structuring on interest only and setting up a offset account it was really informative. It sounds fairly easy I was wondering why not everyone does it this way?? Even if I was buying first as a PPOR and than maybe in the future 3-5 years turn it into a Investment property this strategy makes total sense. But what if I get emotional attached to the property and decide to live their forever will this loan structure strategy still work ???
Thanks I appreciate your answers
My understand is that it would still work and as you grow the offset account, the more your loan gets "paid off" in a way. The big advantage of the strategy is that you can draw upon your offset account (since it's your money) at a moment's notice for any emergency or opportunity. Just ensure that your loan's offset account is true 100% offset as I've heard that a few aren't and catch people by surprise.
Nice thanks for that, what about if your loan was structured principle and interest loan with an offset account would you be able to pay off that even faster???
Thanks
mattliasiian wrote:But what if I get emotional attached to the property and decide to live their forever will this loan structure strategy still work ???Yes it will still work even if you live there forever.
Example;
500k purchase price + 500k in the offset = no mortgage payments and 500k cash available as required with out going to the bank to ask for it and if you change your mind take the cash with you and rent the property and you have preserved the principal.
To use a cliche, win win.
Colin Rice | CDR Finance
http://cdrfinance.com.au/
Email Me | Phone MePerth Based Mortgage Broker - Investment Property Finance Specialist | E: [email protected]
Escal8 wrote:Just ensure that your loan's offset account is true 100% offset as I've heard that a few aren't and catch people by surprise.St George are notorious for this if you don't choose the correct offset. There system has a glitch on interest only loans where the assessor at application stage cant choose a true 100% offset account so needs to be rectified post approval.
Last count St George had four different types of offset accounts.
Banks are like little children. You can give them instructions but always pays to check that they have actually followed them, always!
Colin Rice | CDR Finance
http://cdrfinance.com.au/
Email Me | Phone MePerth Based Mortgage Broker - Investment Property Finance Specialist | E: [email protected]
Thank you very much FMS for the insight , but won't I be paying more interest over the time if the loan if I was to use interest only structure??? If I was just paying off interest only loan and putting my money into offset is that kind of like having a savings?? Because if I have a principle and interest only on a 240000 loan and putting my remaining savings into a offset would that be even better and paying less interest???
Thank You
mattliasiian wrote:Thanks Jamie I also had a read on your article with Loan structuring on interest only and setting up a offset account it was really informative. It sounds fairly easy I was wondering why not everyone does it this way??Because they just don't know.
Not many bankers or brokers for that matter have an understanding of the concept.
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
Theres just one thing on my mind I cant get around to having a interest only loan. Won't II be paying more interest over the time of the loan if I was to use interest only structure??? If I was just paying off interest only loan and putting my money into offset is that kind of like having a savings?? Because if I have a principle and interest on a $240000 loan and putting my remaining savings into a offset would that be even better and paying less interest???
Thank You
No, you won't pay more. Have a read up on the many articles about how offset accounts work and it might be explained in a way you understand.
FMS explained it pretty well.
$500000 loan. Interest Only.
$500000 in offset account.
Interest is usually calculated on (loan – offset account) x daily interest rate. 500000 – 500000 x interest = $0 interest charged. If you take that theory, then you put your additional 'principle' payment and put it in the offset account then you will be charged less interest due to the (loan – offset account) x daily interest rate rule. Assuming you have a true 100% offset account, then you will be in the exact same situation:
I&P loan
$500000.
Payment : $3500. $3000 Interest. $500 principle.
IO loan.
$500000
Payment $3000. $3000 Interest.
Additional $500 in offset. Means interest will be charged on $499500, just like the I&P loan.
Nice post Benny, you put in way more effort than I could have!
A downside to IO and offset accounts that I found, particularly when I was younger, is having access to your money can burn a whole in your pocket pretty quickly. When I bought my first place I called the bank and made them increase my repayments and deliberately made it I&P so I was forced to pay it. If it was in an offset account, or even a redraw I might not have had the self control to 'save'. At a later stage I then remortgaged and got the money back with a small fee…
Now I'm apparently wiser, or at least older, I have the IO & Offset setup for my IP(s), but still have P&I on my PPOR as a bit of a safety net.
Hi Matt
The concept of a I/O loan with an offset account gets thrown around a lot on this forum as the ideal set up.
And, in most scenarios… it is !
As others have highlighted the benefits and how the structure works, i won't re-hash that… what i will say but, is it all falls over is if you are not totally committed and disciplined in your savings…
Eg. If you have 50K savings in your offset account after 5 years and you figure, 'hey, we are doing ok, let's go on that overseas holiday and blow 10K', you reduce your offset to 40K. The next year, the offset account gets back to the glass ceiling of 50K and you figure 'hey, we are doing ok, let's upgrade the car to a nice, new, shiny one' once again reducing the offset to 40k. The next year, your back to the glass ceiling of 50K and you figure 'hey, let's spend 10K on a new house furniture package'….
You can see the trap ? After X number of years, you still have the same principle owing, and only have 50K in the bank, whereas paying P&I would have forced you to save the money that you'd spent on 'stuff over time'.
Matt
Thanks to all your wonderful comments guys, I really appreciate all this as I did not learn anything of this at school nor got taught by family.
I am just a little bit worried as I'll be purchasing this property with my partner, which I know as mentioned above Matt_Arnold post ^ 'hey, we are doing ok, let's go on that overseas holiday and blow 10K', you reduce your offset to 40K.This situation will happen because there is money available in the offset account. So I do not think this will work long term unless it was my own property purchase as I will definitely set up interest only. In my situation I think it would be safe to pay down principle and interest with the offset account even if I am losing $$$ in long term I would rather have some principle paid say in 5 years than just paying interest 5 years than with the offset account being touched because of Undisclipinary habits . This situation is tough as I know my partners money habits and is stubborn to learn " Oh don't worry we will just withdraw and I'll put it back…… Oh I need to pay for this bill and I'll pay it back ……"
Sorry if I got off topic and mentioned the personal side, I think that is why I keep asking about this Offset interest only structure
Hi Matt,
All good questions – once you have your head around it, things will all start to make sense. For now, let me say it "my way", and see if you can relate to my words. Sometimes we need to hear the information in different words before we "get it"….. Here I go :-
Quote:If I was just paying off interest only loan and putting my money into offset is that kind of like having a savings??Yes, it can be seen to be like that. With an Offset though, you have significant benefits :-
A Savings account might give you 1% Interest pa (if you are lucky). THEN you must pay Tax on that Interest paid to you. With an Offset, your Interest Rate is whatever your Home Loan is – so more like 5%, with NO Tax to be paid on your "earnings", as no Interest is paid back to you from the Bank (you have reduced the Interest owing, rather than you paying FULL Interest and the Bank "paying you back" as if it were a Savings account).
You have already paid Tax on the $$ that are being used in the Offset account, so they are your $$ to re-use at any time, as you see fit. And yes, they CAN even be used to pay off the Mortgage if you so choose. By not paying it off though, you get the benefit of paying less Mortgage Interest while ever you have funds in Offset. e.g. If your loan is $240k, and your Offset account holds $100k, then you only pay Interest on $140k.
Quote:Because if I have a principle and interest on a $240000 loan and putting my remaining savings into a offset would that be even better and paying less interest???No – and here's why !! Let's say the Interest on $240k (Interest Only) is $12k pa. And the Principal component is an extra (say) $5k pa. You are able to put away $25k pa in your Offset to cover Interest, and save some more $$ too. Near enough? So here's the result from each way :-
Pay off P&I and use Offset for the excess savings :-
You will finish year 2 with Principal owing of less than $230k. You have now given the Bank back over $10k, so it is no longer available for you to call on "at will" – but your Offset still has nearly $16k in it, and is further reducing the Interest paid, meaning your P&I payments are reducing your Principal even more…
Pay IO and put all savings into Offset as before :-
End of year 2 – you still owe $240k, but your "extra savings" in Offset (after Interest paid) of $26k have you paying Interest on $214k only. The BIG difference is that you have more than covered a P&I payment, yet have not "locked up" your $$ by officially giving them back to the Bank. At any time, you can choose to "pay it off" (by paying down the Principal) but why would you? With this system, your funds remain "flexible", and able to be used IMMEDIATELY for whatever you choose.
As you can see, your choice is between a way that is fixed (i.e. with P&I you MUST be putting away $17k pa to cover P&I commitments, and would not easily be able to withdraw those payments again if required). If your plan is to (later) make this place into an IP, there are benefits in retaining the mortgage as high as possible.
The other choice is to remain flexible, while "paying lower Interest" by holding your spare cash in the Offset (as though it is paying down the mortgage – it is certainly reducing the Interest payments as though it were "paid down", yes?) If hard times were to hit, your commitment is to make payments of just $12k pa and not $17k. In fact, with the Offset in use, the actual Interest won't be that high – more like $11.2k after 2 years of Offset savings.
So, no nett gains in "paying P&I to reduce Interest", as the Offset does that anyway, while keeping your $$ flexible. You may withdraw ALL of your Offset savings at any time, for any reason (which could include allowing you to buy "the deal of the century, but you must put $$ down TODAY!!"
) You miss it if you had to apply for a Redraw via your Bank….Hope that helps some,
Benny
) You miss it if you had to apply for a Redraw via your Bank….You must be logged in to reply to this topic. If you don't have an account, you can register here.
