Payoff mortgage faster

[cantik]

Hi mates,

I hope you can help me. Me and my husbane have a PPOR which we bought nearly two years ago. We had two home loan accounts against it, as first account for the land & the second is for construction loan. The total loan for both loans is $373,000 (160,000 + 213,000). The value of the house is $425,000

The loan is with CBA under wealth package where the interest is 7.21 ( I believe it's very high). The monthly repayment is about $2,500 for PI

We are both a very less knowledge about home loan as this is our first home and we are only 4 years in Australia (Brisbane).

We really want to payoff our mortgage as early as possible (at present we pay extra payment $50.00 each week for each account). And we plan to put up extra whenever we have cash.

We heard that if we can open an offset account will help to reduce the interest (is this true?) how does it work? And will I be able to change the repayment by weekly (as my husband gets his wages weekly and mine is monthly). Do you think that I should shop around to get better interest rates and is it worth it to refinance my loan?

Our cash saving here around $8K but we are also have a saving at our home country for about $30K (our saving before came to Australia), will it worth it to put it in our offset account too to reduce the rate and can I withdraw the money anytime if we need it?

At present CBA also offering Line of Credit for wealth package where the interest will be 7.31. Which one is better product in order to pay my loan faster than having the offset account?

Wish you can help us with my questions above

Cheers
cantik

 

[Peter_Tersteeg]

With the CBA you want to set up a MISA account to offset your home loan. Move your $8k into this account as it will reduce the amount of interest you pay. If you currently owe $200,000 on that loan, you'd now be paying interest on $192,000 (current balance - amount in the offset).

You can take money out of the offset account if you need it for other purposes, but with the CBA it is a minimum amount of $2,000 (I think). It's actually a good way to enforce you to save the money.

It may or may not be worthwhile transfering money from overseas at the moment. The Aussie Dollar is quite high at the moment, you might be better off waiting for it to reduce before transfering funds internationally.

Don't believe what people tell you, the line of credit is unlikely pay off your loan faster, it's more likely to have the opposite effect.

You're being screwed on interest rates. Call the CBA, tell them you're considering moving and that their compeditors are offering interest rates below 7%. They're charging you too much and this will probably generate a better deal for you. If they don't budge, call myself or another broker on the forum to fix this.

Most importantly: Make extra repayments. This is the silver bullet to reducing your mortgage quickly. Offset accounts, weekly repayments and better interest rates are all good, but nothing compares to making a few sacrifices and getting ahead on repayments. $50 extra is good. $200 extra is better. Start writing down what you spend money on as this will help you budget better.

 

[EarlyRetirement]

What PT_Bear said. Save that you can transfer a minimum of $500 out of a MISA account.

 

[Cdro]

I think PT Bear is right - negotiate with the bank first, but failing that, start shopping around. From my experience, I think a mortgage broker is your best friend when you're looking for a better deal. My husband and I have used one for each of our IP's, and their market knowledge was infinitely better than ours! If you do think of switching, just be careful of costs of breaking the loan and also the costs of setting up a new loan.

PT Bear, what is the difference between extra repayments and having an offset? I've been thinking about this recently for my own IP's, but when I do the numbers, I can't find the difference - how should I be working it out?

 

[cantik]

You're being screwed on interest rates. Call the CBA, tell them you're considering moving and that their compeditors are offering interest rates below 7%. They're charging you too much and this will probably generate a better deal for you. If they don't budge, call myself or another broker on the forum to fix this.

Do you think if I refinance my loan the cost for breaching the contract and cost to refinance is reasonable (not too expensive) as our loan is only less than 2 years.

 

[cantik]

Most importantly: Make extra repayments.[/b] This is the silver bullet to reducing your mortgage quickly. Offset accounts, weekly repayments and better interest rates are all good, but nothing compares to making a few sacrifices and getting ahead on repayments. $50 extra is good. $200 extra is better. Start writing down what you spend money on as this will help you budget better.

The $50.00 is weekly for each account, therefore it's around $200 monthly. We tried our best to pay extra more than that.

 

[Rolf Latham]

Hi

Stay away from the Line of Credit Product, stick with the Standard variable, chase a better discount with them , and use the MISA offset.

Those are all the obvious things.

The 50 a week will certainly help to reduce the term of the loan as well.

Depending on your risk profile and current Loan to value ratio, purchase of a suitable investmen property or share portfolio may accelerate your Net worth more quickly than simply paying the loan down.

Another important question would be, what happen in say 15 yers time when u have paid it off ? Will u continue to live in this property ?

ta
rolf

 

[cantik]

Depending on your risk profile and current Loan to value ratio, purchase of a suitable investmen property or share portfolio may accelerate your Net worth more quickly than simply paying the loan down.

Another important question would be, what happen in say 15 yers time when u have paid it off ? Will u continue to live in this property ?

Well, if you ask me, I definately wish to have an investment property, but I am still totally blind with this. We do not know how does it work (especially with the tax), how to start and how to repay them.
Definately wish to have a better house for the next 15 years.

Any advice will be great
cheers

 

[Peter_Tersteeg]

PT Bear, what is the difference between extra repayments and having an offset? I've been thinking about this recently for my own IP's, but when I do the numbers, I can't find the difference - how should I be working it out?

There's no actual difference in terms of the numbers. Either way should save you the same amount in interest, dollar for dollar. The difference comes from the use of the funds and access to them.

Money in the offset account should be post tax money you've saved, such as your salary. Rental and investment income is okay as well as that gets offset against your deductable interest and you eventually pay tax on the profits anyway.

If you ever want to make your PPOR a rental property and buy a new PPOR, the loan on the first PPOR will become tax deductable (it's now for investment use). If you've got your savings in an offset account, you can access these savings for personal use without effecting the deductablity of the loan, as you're not actually borrowing money when you redraw from an offset account.

If you make extra repayments on a loan, the property then becomes and IP and you want to redraw those extra repayments for a non dedutable use (such as a deposit for your new PPOR), you're actually increasing your dedutable loan for non deductable purposes. The purpose of the deductable loan is now contaminated and the ATO may not recognise the loans deductablility.

An offset account keeps the use or potential use of funds separate, but still gives you the same financial result.

Do you think if I refinance my loan the cost for breaching the contract and cost to refinance is reasonable (not too expensive) as our loan is only less than 2 years.

If you renegotiate your existing loan with the CBA, they won't charge exit fees. You may get charges a 'variation fee' depending on the products involved, but that's about half the cost. The worst case scenario is you're charged the exit fee, then it's immediately refunded.

Be warned that not all lenders do this however.

Well, if you ask me, I definately wish to have an investment property, but I am still totally blind with this. We do not know how does it work (especially with the tax), how to start and how to repay them.
Definately wish to have a better house for the next 15 years.

Definitely put your extra savings into an offset account. As suggested above, it will give you more flexibility if you purchase another property or want to buy a new PPOR.

There's so much great advice out there about how to approach investing in property. Probably the best advice is to keep reading these forums and keep asking questions!