Mortgage broker help! 100% Offset account repayment calculations?

[ker]

Hello all,

I am a little confused with respect to 100% offset accounts and how how much money you have in your offset account affects the monthly loan repayment assuming I'm on P & I repayments.

So say I have a loan for $300k P & I at 5.21% my reapyments on a 30yr loan term with no money in offset would be $1649.19.

Say I dump $50k into my offset account 2 months later, interest is now calculated on a loan balance of $250k -correct.

But does this mean the lender now deducts P & I based on $250k, or do they just reduce the interest compenent?

I guess bottom line is what will be my next month payments if I'm on P & I payments after I deposit the $50k? Will it stay the same? and if not how is it calculated by the lender to determine?

any help or clarification greatly appreciated.


rgds,

Ker

 

[Kristine..]

Hello Ker

Your $1,649 monthly P&I payment is made up of $1,303 Interest and $346 Principal.

When you deposit $50,000 into the offset, even though your loan statement will still show a balance of $300,000 you will receive the benefit of interest being calculated on an active balance of $250,000.

Your payment will remain the same - $1,649, but this will be made up of $1,085 interest and $564 Principal payments. This 'balance of payments' changes slightly every month as you work through the 360 months of the loan term.

Holding the $50,000 in the offset account will shorten the time it takes you to pay back the loan to approximately 27 years (instead of 30 years) and reduce the interest by approximately $35,000. This is very approximate but gives you the idea.

The monthly payment can only be reduced if you either negotiate an adjustment and are prepared to pay the $50,000 into the loan as a Principal Reduction (no redraw), or if you switch to Interest Only.

Hope this helps
Kristine

 

[ker]

Thanks Kristine for you very clear explanation makes things crystal clear!

Was just confused because lenders seem to offer diffeent offset accounts or from reading some other threads the difference between interest only and P & I and how affects your actual repayments where 100% offset accounts were concerned.


many thanks again for you post.


rgds,

Ker

 

[lostis]

The monthly payment can only be reduced if you either negotiate an adjustment and are prepared to pay the $50,000 into the loan as a Principal Reduction (no redraw), or if you switch to Interest Only.

Does this not defeat the purpose of having an offset account? I mean aren't they supposed to provide the ability to redraw the money if required?

If you are paying the money directly into the loan why would you need the offset account in the first place?

Please correct me if i'm seeing this from the wrong perspective