I usually say for someone trying to pay off a home:
-Get 100% offset, take cash from here, get atm cards for this account, get it with no fees
-Direct salary crediting into offset account
-Have a credit card, pay for everything that is not cash with a credit card. Repay the card from the offset account before the interest free days are up. This way as much money is in the offest for as long as possible.
-Get a loan that is essentially free to change between fixed/variable or split it at will.
-No ongoing fees
-But most importantly: Lowest interest rate.But the truth is people often do little to no calculations over what makes a difference and what doesn’t. Like direct salary crediting to an offset account and living off a credit card and paying it back at the end of the month or after 30 days for each purchase is never going to put you ahead more than 1 months living expenses. For example if you are in debt $300k and living expenses are $2.5k for the month, if you follow the plan perfectly, the best you can do is basically have an effective debt of $297.5k. A saving of about $3,000 in interest. Now instead imajine you got a loan that wasn’t 7.5% but 7.0% interest rates, the difference ends up being $18,000. If you got one that did both you could save over $21,000.
Just to clarify, in case we misunderstand the idea of direct salary crediting, and how interest works after Daciums comments –
Lets take your example of a 300k loan. Now imagine an extreme situation where you are paying a huge 1/4 percent more on your loan (unlikely if you have done a bit of shopping around) but it allows you direct salary crediting, the .25% cheaper loan does not. The interest componant of 300k per annum on a monthly basis is $62.50 @ .25% interest. The idea of direct salary crediting if it can be used correctly is that instead of spending all your pay, and the extra $20 or $50 you have in your wallet, is that it stays in your loan, thus reducing the interest paid. Lets say only $20 per week gets left behind in your loan. That is a saving of $86.60 in interest for the month using the above scenario and interest rates . Thus the more expenisve loan interest rate in this case, WOULD result in the loan being paid off quicker all things being equal.
You must be logged in to reply to this topic. If you don't have an account, you can register here.
