Help with mortgage/investment idea's?

P

powerranger

Firstly Id like to say what a great forum you lot have here, really glad I found it:)

My name Is Mark and Im keen to learn about investing in property.

I currently have an IP in kurunjang (melton) which I purchased for 270k in october 2011 with my 10% deposit. I know its not an ideal area to invest in but I was only 19 when i bought it and it was pretty much all I could afford.

Since then I have paid 32k off the mortgage and have an outstanding debt of 208k. I am intersted in buying another property but Im unsure as to whether or not it is the right thing to do.

Should I focus on paying down my mortgage and saving at the same time (offset account)... or use the equity in my mortgage with some of my savings to purchase another property?

Im new to this so please be nice:)

Thanks, Mark.
 
powerranger said:
Firstly Id like to say what a great forum you lot have here, really glad I found it:)

My name Is Mark and Im keen to learn about investing in property.

I currently have an IP in kurunjang (melton) which I purchased for 270k in october 2011 with my 10% deposit. I know its not an ideal area to invest in but I was only 19 when i bought it and it was pretty much all I could afford.

Since then I have paid 32k off the mortgage and have an outstanding debt of 208k. I am intersted in buying another property but Im unsure as to whether or not it is the right thing to do.

Should I focus on paying down my mortgage and saving at the same time (offset account)... or use the equity in my mortgage with some of my savings to purchase another property?

Im new to this so please be nice:)

Thanks, Mark.
Click to expand...

Welcome buddy, you are doing great!!

In terms of the finance side of things, I am not an expert, but since it is an investment loan, you should not be paying it down, but to offset it and maximise tax benefits.
 
My suggestion would be to put any extra cash you've got into the offset account. It's not quite the same as paying off the mortgage, but it will have the same effect in that it will reduce the amount of interest you pay on the loan.

From a tax perspective it is better to use equity in the property as a deposit rather than your savings. If there isn't enough equity in the property, you can restructure the loan to use your savings in a tax effective manner to get the same result.
 
Thanks for the replies, I should clear up something, The property I have was actually PPOR but I then moved back home and rented it out. Not sure if that makes a difference? but it is not an investment loan, I bleieve? lol.
 
powerranger said:
Thanks for the replies, I should clear up something, The property I have was actually PPOR but I then moved back home and rented it out. Not sure if that makes a difference? but it is not an investment loan, I bleieve? lol.
Click to expand...

hi powerranger,

Do your self a favor and get some structural advice from a local mortgage broker on the loan. It isn't that difficult to amend (in most cases) and will likely save you $$$ and regrets going forward.
 
"Since then I have paid 32k off the mortgage and have an outstanding debt of 208k".

Is the 32k in your offset or in the redraw?
 
The reason I ask had a client the other day tell me that he had 80k in an offset and turns out he had 80k in the redraw not the offset but in his mind it was the same thing!
 
powerranger said:
The 32k is in redraw, my personal savings are in the offset:)
Click to expand...

Best to accumulate ALL saving in the offset rather than pay extra towards the loan as per 32k redraw. Also better to have the loan as interest only rather than P&I. So if its interest only with offset then the structure is correct.
 
FMS said:
The reason I ask had a client the other day tell me that he had 80k in an offset and turns out he had 80k in the redraw not the offset but in his mind it was the same thing!
Click to expand...

thats because some lenders have created this mud /fog on purpose.

What the heck is an "Offset redraw account"................... its either or ................


ta
rolf
 
FMS said:
The reason I ask had a client the other day tell me that he had 80k in an offset and turns out he had 80k in the redraw not the offset but in his mind it was the same thing!
Click to expand...

Common mistake, often usually because illinformed bankers tell the clients that an offset is the same as a redraw!
 
FMS said:
Best to accumulate ALL saving in the offset rather than pay extra towards the loan as per 32k redraw. Also better to have the loan as interest only rather than P&I. So if its interest only with offset then the structure is correct.
Click to expand...

Okay, so this means my principle amount that I owe will stay the same and I'd only be paying off the interest charged to me.. I can then put that extra money ive been using to pay down my loan into the offset account which will effectively free up my cash, allowing me to save more and have a lower monthly outlay... is this right or did i just confuse myself? haha

I think my problem is I dont like debt.. i have trouble seeing how debt can actually work for me, hence Im trying to pay down my loan asap..

I dont think my property in melton will have sufficient capital growth for me to rely on interms of building enough equity..idk. time will tell i guess.
 
Think of it like this:

If the remaining debt on your mortgage is $150k and you happen to have $150k in your offset account, then you would not be charged any interest at all.

If the remaining debt on your mortgage account is $150k and you have $50k in the offset, you will be charged interest only on the difference (which is $100k).

So in a nutshell, your objective is better to be "get the balance of the offset to equal the size of the mortgage debt" instead of "pay off the mortgage".

The difference between redraw and offset is:

In an offset account, you can withdraw your money at any time for any reason and do with it what you want. For example, go on holidays, pay some bills, of spend it on the deposit on another property investment. You do not need to ask the bank's permission. You just whip the money out of there whenever you want. In the meantime, it reduces interest payable on your mortgage.

A redraw. Hmmm. You have to fill out a form and pay a fee to get your own money back. It is considered a borrowing event, and the bank can opt to say no if they want.
 
Thanks JacM

I understand the difference between the two.. But the reasoning is what I have trouble with.

I consider the money I have paid back.. to be.. well.. exactly that, money that I have paid back and is no longer mine, so i never re-draw and dont plan to.

I suppose what Im trying to get at is..

Is it in my best intrest to:

A) Continue as I am. Paying extra repayments towards the P&I loan, whilst throwing whatever left over I have into my offset account.

B) Changing the loan to Interest only and pump all my savings into the offset account... and try to live with the fact that the principle amount isnt lowering, which bugs me?

I really should buy some reading material regarding all this.. lol.
 
powerranger said:
Okay, so this means my principle amount that I owe will stay the same and I'd only be paying off the interest charged to me.. I can then put that extra money ive been using to pay down my loan into the offset account which will effectively free up my cash, allowing me to save more and have a lower monthly outlay... is this right or did i just confuse myself? haha

I
Click to expand...

Pretty much. You are in control rather than the bank.
 
Hi powerranger,

It is equity and/or offset account money that enables you to easily purchase additional investment properties, without having to work more hours at your day job.

Imagine this: when you get to a situation where your monthly rental income after paying the property bills and mortgage interest leaves a substantial surplus. This would mean you could pull a pile of money out of the offset and spend it on the deposit of your next investment property, without you having to put your hand in your pocket every month to prop up the mortgages. And rinse and repeat. I don't think you've found your way onto these forums because you only ever want to buy one property, or because you desperately want to work long hours at a normal job until you are a hundred years old just to make ends meet. It's kind of tough to get your head around it, but there is a reason we are all saying "Interest Only with Offset Account". It is the path of least resistance towards getting you into owning more properties :D
 
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