HiI All, my first post…..
Here’s the situation which has me all frazzled today.
My PPOR P&I loan according to my bank statements :
Home Loan Account Balance 105,000 DR, Available Funds, 82,000 CR
MISA Account Balance 109,000CR, Available Funds, 109,000CR
We have been paying ~$3000 per month recently, and are obviously well ahead.So I figure, with more money in my offset MISA account than the outstanding loan amount, I am paying NO interest every month.
Now I wanted to stop my monthly repayments, so I could do something better with the money each month.
I rang the customer hotline. The service (and tone of voice as I asked for explanations) was pretty ordinary, but regardless, I was told that the minimum required payment (~750 dollars / month) was going to be taken from the redraw balance regardless of the loan balance/MISA situation. What is the redraw balance? Is it the 82,000 CR? I was hoping I could just stop all of my repayments, with no consequences, as I was ahead with them.So my main question is, what is the best thing for me to do immediately, to avoid paying ~750 to some kind of black hole that in the bank? I don’t want to close the loan, as that way I don’t have to apply for a new loan for an investment property. Can I refinance, or reset the minimum monthly amount to a very very small amount somehow? Can someone who has been in a similar situation please provide clear and simple details for me on this?
Please help, as I feel that I have been throwing money away needlessly in recent times!!!
Thanks
Hi GSSW,
I am not a broker so take what I say with a grain of salt.
My take on this is that even though your account is not incurring interest you are still required to make minimum payments of $750/month as per your original loan documents.
The upside of this is that the $750 will be all principle and as such you are not paying any interest whatsoever and you will potentially own your home even faster.
Derek
[email protected]Property Investment Support Available. Ongoing and never stopping. PM welcome.
thanks for the reply Derek.
The thing still puzzling me though is:
My effective loan balance is now $zero, (actually ~-$4000), so where is the $750 going??? Can i get acces to all of this money again?
I get the feeling i can’t, so i need to ‘rebalance’ or something so i stop throwing money away….
Does anyone else know??Hi GSSW,
The $750 should be reducing the amount principal amount on your home loan – so this figure should continue to reduce ny $750/month until the loan is either paid out or refinanced.
I am assuming the MISA account effectively operates as an offset account and as this is greater than your home loan it means there is no interest being levied on your home loan.
My position on this is that you are in a healthy position with a few options up your sleeve; establish line of credit against available equity to start an investment program of some description, pay the loan off entirely and then set your line of credit up, use the $109K as a term deposit and use this as security for property deposits, pay cash deposits for investments, buy investments outright and so on.
For me I would prefer to leverage my available dollars/equity to maximise my holdings – it really depends upon your beliefs.
PS – I moved this discussion into the finance section and deleted the other post which is a repeat of this one to save you having to follow two threads.
Derek
[email protected]Property Investment Support Available. Ongoing and never stopping. PM welcome.
The offset account doesn’t change you loan balance, so you will still ahve to make the minimum repayments. You will not be charged any interest if you have more in the offset than in the loan, so all of the repayment would be going to reduce the principle. If you change your loan to IO, then you may be able to just let the balance hover if you have an equivalent balance in your offset account.
You avialable redraw limit should be constantly increasing as you loan is being paid at a faster rate than normal.
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
Ahhh ok, i think its becoming clearer….
Its amazing how some of us (me!) work so hard to pay the mortgage, and all the while understand so little about how it actually works!
So from what i have gathered so far, i can keep paying my $750 minimum per month,, it will reduce the principle amount of the loan by $750 as no interest will be charged.
Would I be wrong in thinking i should keep the MISA at ‘just enough’ to balance the loan amount, and take any extra cash out of the MISA to put into a better earning vehicle (fixed interest etc)? So each month I can take money out of the MISA, by the same amount as i pout into it….
Or am i just confusing myself??Originally posted by GSSW:Ahhh ok, i think its becoming clearer….
Would I be wrong in thinking i should keep the MISA at ‘just enough’ to balance the loan amount, and take any extra cash out of the MISA to put into a better earning vehicle (fixed interest etc)? So each month I can take money out of the MISA, by the same amount as i pout into it….
Or am i just confusing myself??I think you might as well take any excess funds out as you would probably not be earning any interest – or not much. Maybe put the excess into a ING account?
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
Hi GSSW,
Don’t be frazzled, the mechanics of an offset can at times be confusing to many people,
Your confusion may stem from a misconception of how an offset operates; I hope the following helpsYour situation.
Current loan balance $105.000
Funds in Offset account $109.000
Currently available in redraw $87.000
Required minimum loan repayments $750 per month, on a P&I 25/30 year term loan.
Estimated original loan amount of $187.000
($82K redraw + current balance of $105K = $187K)You currently have a loan balance of $105K, the interest payable on this is offset by the $109K sitting in the Offset account, so effectively you are not being charged interest on the $105K,
But, because your loan repayments are P&I you are still making principle repayments,However if you had a loan with interest only repayments, the monthly repayments would be Zero,
Your monthly repayments are not going into a black hole, but is helping to pay down your PPR loan (non-deductible debt) at a faster rate; this is the primary benefit of an offset account.BTW, Be careful if you intend to use the funds available in the redraw for investment purpose, as this may cause problems come tax time, a split loan may be a better option.
Regards
Steven
Mortgage Broker[email protected]
http://www.mobilemortgagemarket.com.au
Ph:0402483216
Ph:1800 820 500
VICTORIAPLEASE note comments made should not be taken as specific taxation, financial, legal or investment advice.
Exactly what i had planned Terry, ING.
I already have some money stached away there, so i guess i can add to it and get 5.25%.Thanks for the thorough analysis Steve.
I might consider switching to interest only, not sure if the bank will like/allow it. First gotta wait a couple of months for the 3years loan term to pass i think, in order to avoid early payment etc. fees.I think I am in a good position to start seriously looking at purchasing an investment property. Hopefully I will be having a good look by early next year, and try to +CF it with a decent deposit.
Thanks all
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