These rates too good to be true?

[lowb]

i recall advice in the forum:

1. Use LOC for all investment related expenses/incomes
2. Use Offset for all personal income/expenses

rough calculation shows that with the bank account, you earn more interest than the mortgage interest you save... (is it correct?)

//offset case
e.g. 10,000 in offset, reduces mortgage interest 7%
but mortgage interest is tax deductible,
effective amount earned/saved = amount * mortgage_interest * tax_bracket_rate
=10,000 x 7% x 40%
=10,000 x 2.8%

//bank account
10,000, earning 6%
effective amount earned/saved = amount * bank_interest * 100-tax_bracket_rate
=10,000 x 6% x (100-40)%
=10,000 x 3.6%

so would it be better to

1. Use LOC for investment related expense/income
2. Use interest earning account for personal expense/income

?

 

[Sooley]

They are similar to Homepath. The problem with Homepath or this product is that there is no customer support at all.
You apply online and don't really have any communication with anyone. This is a problem in the sense that you have no one to help structure the loan and it can be very hard to get your approval through on time if there is no one there pushing the deal through for you.

If your after a low rate and don't care for any help then yes, its a great way to go.

Anthony

 

[Rolf Latham]

Hiya

These types of low service proposition businesses have actually increased my volumes.......... the number of botched deals we pick is interesting.

Ever tried doing an equity pull through one of them :O)

ta
rolf

 

[kero]

sonic

sonic, you are right. after the discount its 7.12%.

well, 6.71% vs 7.12%... that's nearly 0.41% difference! for a $340k loan, its nearly a difference of $93.30! that's 2 take aways fo me.

 

[ILoveProperty]

um... 0.41% of $340k is $1394 pa.

 

[APerry]

//offset case
e.g. 10,000 in offset, reduces mortgage interest 7%
but mortgage interest is tax deductible,
effective amount earned/saved = amount * mortgage_interest * tax_bracket_rate
=10,000 x 7% x 40%
=10,000 x 2.8%

That should be:
=10,000 x 7%/60%
=10,000 x 11.7%
if you are taking into account equivalent before tax earnings. Remeber you pay no tax on amounts saved, you do on amounts earned.

Regards
Alistair

 

[kero]

um... 0.41% of $340k is $1394 pa.

i meant per month, roughly...

 

[lowb]

thanks for that

now that I think about it, it may be better to go with the bigger institutions (those with offices)

if you want to negoitate something, you can go to the office and talk about it. on the phone, you lose negotiating power

 

[bradje]

thanks for that

now that I think about it, it may be better to go with the bigger institutions (those with offices)

if you want to negoitate something, you can go to the office and talk about it. on the phone, you lose negotiating power

I must agree.
Having just extricated myself from Homepath, I would be very wary of these no broker companies.
With Homepath, I had to go right to the top (and I mean the TOP) to get things sorted. And she stuffed up also! Finally I got on to a guy who knew what he was doing.....And it still took 6 weeks to sort out a mistake they had made!
My 2c worth: If you find a good broker, they are worth sticking with.

I also think you save a LOT more with an offset account and LOC used judiciously, than with .25% or .4% less interest rate without the LOC or offset. Sit down with a broker and do the sums....3c worth.
JB

 

[XBenX]

Good to see Homepath are still keeping up their customer service standards