Calculating principal deduction with 100% offset

Discussion in 'Loans & Mortgage Brokers' started by kanad, 10th Jul, 2017.

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  1. kanad

    kanad Well-Known Member

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    If I have 30 years 400k P&I loan with an offset account having 400k as well with interest rate at 4.20% how much money will be taken out of offset each month to pay the principal. I understand that there is no interest to be paid but principal would still be deducted by the bank. Is it 400k/360 = $1111 per month, how does the ammortisation work?

    This is for a refinance scenario.
     
  2. Jess Peletier

    Jess Peletier Mortgage Broker & Finance Strategy, Aus Wide! Business Member

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    It's the same as the P&I payment, except the whole lot gets applied to the principle. So $1956 approx in your scenario.

    If you're IO, you won't pay anything. Why are you refinancing?
     
  3. Marg4000

    Marg4000 Well-Known Member

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    Usually it is the standard monthly payment, calculated as if there was no offset account.

    Understandable, as an offset account balance can vary wildly, or be completely withdrawn.
    Marg
     
  4. Peter_Tersteeg

    Peter_Tersteeg Mortgage Broker Business Member

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    Most P&I give you a repayment based on the original loan and interest rate which will pay it off in full over the loan term. This is the minimum monthly repayment and it only changes when the interest rate changes regardless of the extra payments you make or offset balance.

    If the loan is fully offset from day one, with current rates it will usually pay itself off and close in about 9-11 years.
     
  5. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    And if you don't extend the loan or your lender reduce the repayments then it would be paid off in around 15 years.
     
  6. kanad

    kanad Well-Known Member

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    Thanks. I am refinancing my ppor to release equity. Unfortunately they will only release 70% LVR for IO loan but 80% LVR for P&I loan against a ppor.