Hi,
This question requires a bit of mathematical calculation which i am not sure if their is a calculator on the internet that might work it out.
If you had a PPor with say $143000 P&I(6.19% over 25 years) owing on it and had an offset account attached to it.
You had approximately 4 Investment properties and all the rent was going into the offset account say $4000 per month in rent plus your pay around $2000 net and your partners pay around $1600 per month which would total $7600 per month.You lived of your credit card as so to leave maximum amount of cash for the offset account, what would be the saving on your ppor over that month (repayment)?
Is their a simple method to calculate this?
Thanks in advance
Dom
[wink]Hi daaj10242,
$143000 P&I(6.19% over 25 years) = $938.03 monthly repayment.
minusing $7600, sitting in an offset account, your monthly repayments would then equal…
$143000 – $7600 P&I(6.19% over 25 years) = $888.17 monthly repayment.
Would equal a monthly saving of $49.86
Cheers,
sisThankyou SIS for that information, does not seem worth it $596.16 a year in your pocket. I would be better of doing a little bit of overtime each month at work to cover or increase rent on IP by $5 or $10 a week. Dont see much advantages on this borrowing system.
Thanks Dom[thumbsdownanimHi Daa
Don’t forget the cumulative effect-saving interest on interest. Also to save $500 after tax, you may have to earn about $1000 before. Every little bit helps.
Terryw
Discover Home Loans
North Sydney
[email protected]Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Sorry i cant see those advantages with an offset account unless you had a large amount of cash in account.I understand that every bit counts but that $7600 cash sitting in your bank account can be earning more than $50 or $$100 a month more somewhere else im sure with a bit of finacial advice.
Dom[party]
I totally agree. the current loan I am refinancing will definetley not have an offset link. The money sitting in the account could easily be earning interest elsewhere, used to purchase another property etc. It might have advantages for some, but I personally don’t agree with all the praise that offset linked mortgages are given by brokers.
I think it would be a great place for an emergency fund.Say 50% of repayment P/A just in case u have a bad run.Could also be used for repairs etc.U cant have all your money invested all the time so u should have a fund.What better place to keep it than an offset account where it is earning u 6-7%.What do others think?[biggrin]
So many +CF properties out there.Let me help you and achieve a win win situation.Russ.
Like most things it totally depends on your situation and what you goals are.
If one’s aim is to pay down their PPOR, then having in an offset account is perfect. It is the same as paying of actual repayments, but it allows you to take it with you should you decide to move onto bigger and better things and make the PPOR into an IP.
Also as mentioned above, it could also be used as an emergency fund.
Then on the other hand, depending on interest rate and the amount sitting in the offset, you may well be better off investing it else where.
… this fence is getting a little uncomfortable
[biggrin]my two cents..
HHH
Unless you can seriously find a better interest rate that would save you say $50 a month then why not have the ability to offset if necessary?
The issue here isn’t what it does in the first month (which is the basic calculations you have been shown), but what several months of savings would do.
In the above example lets say that of the $7600 income you also had to pay on average about $4000. Only $3600 you save, and only saving a pittance on the first month’s interest amount. Of course though the next month you save a further 3600 which makes it $7200 offsetting the loan amount. Instead of the interest of 6.19% being calculated on $142,602 at the end of the second month it is more like $136,509. It would be hard to find a short-term interest rate of 6.19% or higher and of course you cannot be taxed on this amount since you are reducing a loss [biggrin]
Over a 12-month period in the standard $938.03 per month installment you pay the bank 11,256.36, but only change the balance from $143,000 to $140,748.10. By utilising the offset account at $3600 per month you have a loan balance of $106,888.10, of course most of the gain is still in your offset account ($31,943.64). From this I calculate a gain after all this is taken into account of roughly $1920.
Now I doubt that you would seriously be placing all your rent into your PPOR account so the actual interest saved will be less unless you own outright the rentals….
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