100% offset question

Hi All,

I have just used equity from one of my IP's as a deposit for my 3rd IP. I spoke to my broker and wanted an off-set account, see I have 50K in savings I wanted to throw into the offset account, and from what he told me, that will reduce my monthly interest bill.

Eg, I bought a house for $300,000 with 10% deposit. At 6.18% my interest only repayment comes to $1,390.50. Now if I throw that 50K into the offset, that should reduce my outstanding debt to $1,186.22. Is my understanding correct?

I just read an article in "your mortgage" magazine that states the following:

"However, since your monthly repayments are calculated on the original amount, you are effectively paying extra on your mortgage each month"....HUH????

I don't understand, if my original loan amount is $270,000 (10% -deposit), and I add 50K to my offset, which means my loan outstanding is effectively $220,000 (until I take it out again), how can offset me calculated on the "original amount" and still reduce my monthly repayments.

Can someone clear this up for me? I dont want to make a mistake.
 
Maybe your looking at an interest only loan and the article is referring to a principle and interest loan?
I can't think of another explanation.
 
Some lenders (St George home loan for one) have this limitation in that dollar value of repayments are fixed based on original loan amount. Offset still saves interest. It's just that you make principal repayments as a result.

That said, most lenders offer an offset the adjusts repayments based on amount in offset.
 
Congrats on the new IP, Daniel. So tell me, how did you get past all those issues with the Henry Review, national land tax, 4% council rates, etc etc etc etc etc etc etc etc etc? What got you to plunk down a couple hundred k for something that might be vapourised by some government edict?

I'm just interested. What makes someone who has so many concerns about the fundamentals of property, actually go out and buy another?
 
Congrats on the new IP, Daniel. So tell me, how did you get past all those issues with the Henry Review, national land tax, 4% council rates, etc etc etc etc etc etc etc etc etc? What got you to plunk down a couple hundred k for something that might be vapourised by some government edict?

I'm just interested. What makes someone who has so many concerns about the fundamentals of property, actually go out and buy another?

Hi Alexlee,

I was wondering when someone was going to bring it up :)

I am still concerned, but its a 50/50 thing right now as to how it will all go. What makes me continue to buy is knowing that the govt. will do everything in their power to keep house prices stable. At the end of the day, Im taking a chance. I understand the risks and im willing to take those on and lose everything if it comes to that.
 
I was wondering when someone was going to bring it up :)

Couldn't resist. Clearly you have a lot of concerns about how the tax system and so on might change for the worse, and you didn't seem convinced about the mitigating factors that others proposed. I'm always interested in how and why people's views change.

I am still concerned, but its a 50/50 thing right now as to how it will all go. What makes me continue to buy is knowing that the govt. will do everything in their power to keep house prices stable. At the end of the day, Im taking a chance. I understand the risks and im willing to take those on and lose everything if it comes to that.

In your opinion, do you think the US and UK governments also wanted to keep house prices stable?
 
Im with St George and they have two types of offset.

There is one that appears to operate in the way described by StuartW. This type is the only one available for PPOR home loans.

Its my understand is that the other type of offset a/c provided by St George (to investment properties only) operates in the way you have requested and described.

MIght be worth checkinng out? :)
 
Im with St George and they have two types of offset.

There is one that appears to operate in the way described by StuartW. This type is the only one available for PPOR home loans.

Its my understand is that the other type of offset a/c provided by St George (to investment properties only) operates in the way you have requested and described.

MIght be worth checkinng out? :)

I will make sure to spell out what I want to my broker in writing so there is no confusion.

Thanks
 
yes thats what its referring to - the interest is calculated on original loan amount so while you're being 'charged' less interest due to the offset, you have the same monthly repayments, so the excess you are paying in reduces the loan. although these arent as common i dont think as the 'proper' IO 100% offset loans.
 
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