which loan to choose?

We have migrated Australia last year, so totally inexperienced with Australian market. Currently we are living in rental property.

Recently we(me and my wife) bought our 1st property at 540k and will move in as soon as we get the possession. :)
My wife earns 76k per anam and i have my own small business at overseas. Banks are not ready to consider my overseas business income, so only my wife's income will be considered for loan.
We could gather deposit around 120k and will get 80% loan(400k-420k). We will also be applying for government grant.
We have following queries:

1) which lender to choose as most of them offer similar products and cant understand hidden or minor differences. Should we go for any lender who is is ready to lend us required amount?

2)Currently we are thinking of NAB who offered us loan, Should we go for fixed(around 7%) or variable(5.09%) or split(50%fixed and 50%variable) or interest only(5yrs) loan?

3) should we go for offset account as we are planning to buy some more properties in future? is credit line better than offset account?

4) will my wife be getting tax deduction? as this will be owner occupied property?

We might live in this property for 1 year and then rent it for couple of years(that time we will be overseas).
How will be tax calculations in both cases? when we are living in the property and when we will be overseas?
Please help us,
AHHHH I hope the contract is subject to finance since you really seem to have no idea if a bank will lend you the money.

Since the property will eventually be an investment I would personally go interest only with an offset account. Put any surplus money in the account so as to keep the loan as high as possible and allow you to use the funds as a deposit on your next PPOR. Most the major banks are pretty much on par with each other, make sure you sign up for one of their proffessional packages which will give you a discount on the interest rate and other benefits.

As far as lines of credit go these are usually used when you have a bit of equity in the property and wish to renovate it or use the equity to fund the deposit on the next property.

Unfortunately you can only claim the tax advantages while the property is earning an income so no you will not be able to claim them while you are living there.

Hope this helps
Hiya Sunil

id suggest speaking with a broker that posts on this forum

There are at least these by user name Bradsdad, Kristine, Peter T, and some others.

Have a brief chat with some of them and then choose ONE that you feel comfy with to go further and run you through your options

In doing so you will cover off many lenders, ideas and concepts

G'day Sunil,

The off-set option & IO option maybe the way to go as you mention you intend to rent it out for a period of time down the track. However, as you state you'll both be overseas during this time, the tax benifits maybe next to nil anyway.
How long IO may be determined by your servicing capacity. On the basic information required it looks like you may just get through for 5 years IO but factors such as any existing credit facilities & number of dependants could alter this.

As for fixed/variable or spilt, one would need to discuss you future objectives and the pros/cons of each before you could make an educated decision on this. If you are looking fixing as part of the solution I would suggest moving pretty fast as the NAB/Homeside are the last of the majors left who haven't increased their fixed rates recently. It is also worth noting that the current fixed rate at time of settlement will be applicable not the current advertised rate. this is unless you lock the fixed rate portion in which will cost you arounf 0.15% of loan (fixed portion) amount.

thanks, some more doubts regd loan


Currently I am getting loan from NAB and I am planning to take it for maximum term i.e. 30 years.
Offset account is must as My overseas income or our extra savings we can put in offset account instead of making term deposit. This will reduce our interest for that month. Pls correct me if I am wrong.

Now I have to choose from following options :

1) Fixed or Variable interest
For averaging out future situations(variable rate going up n dn) in next 30years, I am planning to split the loan for 50-50

2) P&I or IO loan ??
As we are planning to invest in 1more property in next 5years, we should have loan servicing ability. Considering my wife's current income we are geting maximum 80% loan (438,000) on our 1st property(purchase cost 547,000). Now if we go for P&I then EMI for variable loan is 2300 and IO is 1800(gives us margin of 500 against P&I). For buying next property I will try to show my overseas income, my wife's salary will increase and equity of my 1st property will also increase.
On the other side, after 5years(IO period) our 1st property EMI will become 2600 but that will be taken care by increasing rent of our 1st property(we will be at overseas), so we need to just worry about the shortfall that we need to pay from our pocket. Am I right?

My friends are suggesting me to go for P&I loan as it will start reducing my loan principal amt, but for 1st 5 years i think we pay maximum interest? so is there any point in it?

What you suggest?

Hi Sunil

if the loan is variable then IO will allow you to pay off as much as you want at your option, or usually smarter, plae the principal repayment in the offset instead

I'm in a similar situation Sunil (although I haven't bought yet). Looking to buy anytime from now, live in it for ~2yrs before moving O/S for about 1yr (renting it out in the meantime, & hence negatively gear it), then return to Brisbane & either move back in for 6-12months or rent somewhere else for 6-12months before looking into purchasing a 2nd place (PPoR).

I've been racking my brain to work out just how much better an offset loan would be compared to a simple redraw-only loan, and whether there'd be any situation where a redraw COULD be a better option, since you do end up saving at least 0.1% interest/yr + a few hundred $$ in fees when opting for the redraw only (eg ING Mortgage Simplifier). But after crunching the numbers it seems that offset wins pretty much regardless, as long as you're looking to turn that place into an IP in the future.

When looking for an offset loan, I want something with a competitive rate, low fees, and reasonable application & break fees. I don't need two credit cards & other bs like that.
I've been told that the best offset option for me is the Homeside Offset Loan - Low Doc, which has:
:) 5.13% variable interest rate,
:) $600 application fee,
:) $300 exit/break fee,
:) only $8/month fee for the offset functionality, which is significantly cheaper than most/all other banks as far as i'm aware.
:confused: but please - anyone reading this - tell me if there's something i'm missing regarding this loan... it seems nearly too good to be true?
Perhaps someone can confirm for me whether this bank is suitable to lump in my future 2nd property's loan into to perhaps get a better rate; or at the least, can i use the offset functionality for both loans so that i'm not paying a second monthly/annual fee for an offset account on my 2nd loan with a different bank?


The off-set option & IO option maybe the way to go as you mention you intend to rent it out for a period of time down the track. However, as you state you'll both be overseas during this time, the tax benifits maybe next to nil anyway.

Steve brings up a good point that I hadn't realised until now (Thanks steve!) in that if you're overseas (& hence not earning an australian wage/paying aussie taxes), then you can't be negatively gearing anything, because there's no earnings to deduct a loss from! Small price to pay (or rather, small earnings to waive) if only overseas for a relatively short timeframe

Steve - if it was the other way round though, and you were POSITIVELY gearing an IP (but not by more than $6000 / equivalent to the zero tax threshold), then that would effectively be free money right there, correct?
I suppose it'd be best to put that amount of earnings towards your PPoR overseas, or alternatively (if this is too difficult/not financially viable due to currency conversions etc) then you should just stick it into that IP's principal to reduce the loan amount and get even further ahead next year?

thankyou all for your help!