Repayment Frequency Question

[eXc]

Hi All,

For a PPOR - I don't have any IPs

My broker told me I should pay off my loan as quick as possible (makes sense!) by paying weekly. He was aware that I was getting paid fortnightly.

I was talking to a friend last night and he reckons that cause I get paid fortnightly, I should pay the loan fortnightly rather than weekly to save money.

I currently throw $1000 into my account that the bank pulls the loan repayments from, I keep $ for fuel/food etc, and the rest goes to a 100% offset account.

What is the best option to save money? My bank allows me to do either.

Out of curiousity - assuming I should pay it fortnightly, does it work the same if I was paid monthly, that I should pay it monthly?

Cheers
Chris

 

[Rolf Latham]

Hiya

Interesting advice, did the broker ask what youd be doing with the property in the next 5 10 or 15 years ? I suspect not. 90 % of brokers and finance people will give the pay it off advice without having all the soft data to hand.

Id say for a start

1. Make the loan IO
2. Attach an offset account to the loan

Salary credit to the offset and voila, you are "paying" daily, because interest is calculated daily

ta
rolf

 

[eXc]

Wouldn't have thought IO would be the way to go on a PPOR?

 

[Rolf Latham]

Simply park the Principal payment and any extra on the offset

What will u do with the place in 5 or 10 years time ?

ta
rolf

 

[eXc]

probably sell for a bigger PPOR, possibly rent it depending on where my finances are.

 

[Rolf Latham]

clear to mě

u dont want to pay it then

rather io with offset so that u have better tax position once u turn the place into an ip

ta
rolf

 

[eXc]

fair enough, so what if I don't keep it as an IP?

 

[yo yo ma]

1. Make the loan IO
2. Attach an offset account to the loan

Salary credit to the offset and voila, you are "paying" daily, because interest is calculated daily

Great advice... kudos.

eXc, if you will "possibly rent it", then best to do the above (if you are not tempted to spend the money in the offset account).

 

[Rolf Latham]

if you dont keep it as an IP you simply sell the place and pay the mortgage down from the money you have saved in the offset.

All the IO offset structure does ( assuming its properly managed with a predictive budget etc) is to future proof ur options.

Paying the place down via principal redns doesnt allow that flexibility

ta
rolf

 

[josko]

So, to cap off the great advice given above:

Generally speaking:

An Offset Account will do the same thing + so much more on an IO loan, than if your payments were P&I with a Savings Account.

Regards JO