Merry Christmas All
Is there any theories around what is the best day / time of the month to make the monthly interest payment on a I/O loan linked to an offset account ?
Eg. Based on the rent coming through at the end of each month (standard real estate practice) do you get the most benefit by having the interest payment at the end of each month, thus having the rent sitting in the offset account for apx 4 works before it leaves the account to pay the monthly interest ?
Cheers
Matt
Why not get the rent paid twice monthly? That way your rent money is holding off some mortgage interest rather than sitting in the real estate agent's account. It also means that you have visibility of any payment issues your tenants are having, sooner rather than later.
If you get paid twice monthly, I think the most convenient time to pay mortgage interest is around the 20th. A few days the mid-month payment, but not so few that if the rent roll is processed a day late that your rent hasn't still landed in time for the mortgage deduction.
I think start-of-month mortgage payments are a bit disruptive because you are dealing with them at the same time as two big events every year – tax yearend (the time when you are also probably at your busiest in your day job) and the xmas/new year holidays (when you should be enjoying yourself rather than remembering to login to your internet banking to check everything is in order with sufficient funds in the correct accounts before the mortgage payment day arrives.
There will be a million different opinions on this topic – nobody is wrong or right – it's largely a personal preference thing. A lot of it has to do with convenience.
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
Matt_Arnold wrote:Merry Christmas All Is there any theories around what is the best day / time of the month to make the monthly interest payment on a I/O loan linked to an offset account ?If the money is sitting in your 100% offset account it makes absolutely no difference whether it sits on the mortgage or separate account providing that you do pay.
Yep, what Scott said is bang on. So it comes down to convenience. eg having rent day lined up nicely with mortgage day.
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
I don't think it would make a difference. Interest accrues daily but is charged monthly. So if you make a deposit to the loan account the day after interest is taken it will benefit you by reducing the principal until the next payment of interest.
But it won't be an issue with hte offset account.
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
Yes in the main although i have come across a couple of Credit unions where interest is charged monthly but offset on a quarterly rest basis depending on a minimum balance.
Rarity so wont be an issue in the majority of cases.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Try the above SS
Here's an example of how an agent forwards your rental payments. If you are paid monthly and a day later your mortgage interest payment is taken the following day you basically get zip for your trouble. If however you are paid weekly and your Offset accrues interest daily and compounds it monthly then: (as an example)
300/wk less 1300/mth @ 6.5%pa
the cumulative interest saved is a massive $35.78… staggering
So wether or not your reimbursed weekly, fortnightly or monthly I wouldn't especially sweat it.
You can use the SS to add income and other ingoing payments and then use the exit column for your expenses. Lotsa ways you can play with this. Because an OS a/c reduces expenses the amount saved will be eroded by losses in tax deductibility. So you will need to reduce your savings by your marginal tax rate to get a more accurate idea of the overall benefit.
Personally I tend not to sweat the small stuff but doing the exercise at least once gives you a better understanding of the magnitude these strategies actually encompass. It's part of those skills you can develop that allow you to do off the top of your head calcs which in turn enable you to filter opportunities faster and in greater quantity.
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