Advice on loan / finance, your thoughts?

[Hypnotic Cat]

After 8 months of searching I was finally successful at auction for a new PPOR on the weekend. Sale price was around the $550k mark, so total purchase costs are around $580k. Property is due for settlement at end of month.

My situation:
I have $500k of own funds + $100k in super

I'm on a low income at present (only about $32k) so therefore can't /don't want to borrow too much. I plan to keep my borrowings to only $100k to 130k.
I plan to keep between $25k to $40k in an offset account as well as acting as a financial buffer.

My question is:
Do you think it's better to borrow to the max I'm allowed? and therefore keep more of my own funds in offset - but higher monthly repayments.

Or

Borrow a lesser amount - lower monthly repayments and lower balance in offset account?

What do you think are the pros and cons?

Your thoughts?

Or should I just get a better paying job? - SOON


Thanks!

 

[Aaron_C]

Not sure why you wouldn't go for the first option all the time.

 

[Hypnotic Cat]

Not sure why you wouldn't go for the first option all the time.

Thanks for your response.

My concern is about keeping up with monthly payments.

I haven't had a mortgage for 16 years, so it all seems like unfamiliar territory again. What do you think are the pros of that option?

thanks

 

[Aaron_C]

But if you have a bigger loan your repayments would be the same since you have all your excess cash in offset anyway (interest only)...

 

[westminster]

Just to reiterate - if the money is in offset then it reduces interest and payment amounts so this is the best option if you want the most amount of flexibility for the future.

So go for A

 

[Rolf Latham]

borrow the max, place balance in offset

same revenue outcome

In your scenario, the max will be very different with different lenders so make sure you address that assuming you want to

ta

rolf

 

[Hypnotic Cat]

Thanks for your replies Aaron, westminster and Rolf.
I'll be making a decision next few days and will consider going IO rather than P&I on the loan with as much of my own funds as possible in offset.

Any particular reason(s) you'd suggest IO over P&I?

thank you

 

[Aaron_C]

Any particular reason(s) you'd suggest IO over P&I?

For the reasons already stated. Your repayments will be much lower and you will conserve as much cash as possible.

 

[Peter_Tersteeg]

Any particular reason(s) you'd suggest IO over P&I?

If you borrow the max as suggested but go with P&I, the minimum monthly repayments will remain the same (based on the maximum loan amount) regardless of how much money you've got in an offset account.

With I/O repayments the actual repayments will reduce based on the amount of cash in an offset. Given you're concerned about cash-flow, this will make a substantial difference.

There's lots of other good reasons to go with I/O; tax, future flexibility to name a few. Your initial synopsis practically screams I/O.

 

[Hypnotic Cat]

Thanks everyone. You've been really helpful and I really appreciate it!
cheers

 

[The Y-man]

Any particular reason(s) you'd suggest IO over P&I?

thank you

In a simplistic nutshell, if you go P&I, you may never see the "P" part of your money again until you sell the property....

The Y-man

 

[Hypnotic Cat]

borrow the max, place balance in offset

same revenue outcome

In your scenario, the max will be very different with different lenders so make sure you address that assuming you want to

ta

rolf

In a simplistic nutshell, if you go P&I, you may never see the "P" part of your money again until you sell the property....

The Y-man

I'd never thought of it that way before.
Thank you very much!