Offset home loan with credit card

Discussion in 'Loans & Mortgage Brokers' started by Property Baron, 26th May, 2020.

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  1. Property Baron

    Property Baron Well-Known Member

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    Hello all,
    If going down the offset home loan route is it the better option to use the credit card strategy if it is possible to do so.
    e.g 600k loan
    50k in offset from day 1
    additional 3 to 4k added to offset each month
    loan PI payments around 5k per month

    Then using credit card for the monthly 3 to 4k living expenses.
    End of the month pay back credit card 3 to 4k out of offset.

    Is it worth the time to do this?
     
  2. Terry_w

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

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    If the card doesn't cost you why not.
     
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  3. Property Baron

    Property Baron Well-Known Member

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    Yes a no fee credit card would be the catch.
    Wonder how much this translates to actual savings
     
  4. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    Bugger all compared to an Active Debt Recycle strategy if you have the risk profile.

    You clearly seem to have the resources to maybe benefit from such a strategy.

    ta
    rolf
     
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  5. Shogun

    Shogun Well-Known Member

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    What is the loan fee $300 that gives you the credit card?
    Fee a tax deduction.
    $40000 a year gets you a $100 gift card
    I suspect it's not really worth it
     
  6. Property Baron

    Property Baron Well-Known Member

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    Have been saving for a while now so in an ok position to buy ppor. Not current on the Active Debt Recycle strategy.
    When you say bugger all compared to ADRS is it still worth the hassle you think? A lot of credit cards have no fees for 1 or 2 years ect then charge fees after that. Would be a hassle to change cards again and again I suppose aespecially if the savings are minor
     
  7. Property Baron

    Property Baron Well-Known Member

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    I was thinking I may save on interest with the offset amount staying in the account for the entire month and then a one off payment to clear the credit card?
     
  8. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    Assume u get 55 days Interest free on a spend of 4 k

    Assume Home loan rate is 3 %

    thats 4 k u arent paying 3 % of interest on

    so around 10 bucks a mth

    all helps I guess

    ta
    rolf
     
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  9. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    Id get your possible outcomes modelled for an Active DR strategy .

    ta
    rolf
     
  10. The Y-man

    The Y-man Moderator Staff Member

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    Go for a no fee card that still gives points like the Amex Qantas Discovery (downside - not accepted everywhere!!)

    The Y-man
     
  11. Terry_w

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

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    what have you got to lose?
     
  12. Property Baron

    Property Baron Well-Known Member

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    Is the Active DR strategy a high risk strategy in this weird Covid days not sure if I need any more risk. Buying this house has me very concerned as it is.
    How can I get basic modelling for this?
    Haha $120 savings a year for the credit card, and Iv heard people around the water cooler talking this up as if it saves them thousands a year
     
  13. The Y-man

    The Y-man Moderator Staff Member

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    The other thing is in the time of a pandemic, you don't need to handle cash!! In fact - you would not even be able to buy pterol at woolies/caltex as they ONLY allow non-cash

    The Y-man
     
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  14. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    the water cooler guys .................. cant comment

    Active DR, is it high risk ?

    dunno

    do u have a super fund at the mo ?

    ta
    rolf
     
  15. Terry_w

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

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    If you are going to invest anyway then debt recycling is less risk because you are saving money.
     
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  16. Property Baron

    Property Baron Well-Known Member

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    Yes my wife and I both have super funds
     
  17. Property Baron

    Property Baron Well-Known Member

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    Tell me what I'm not underdstanding using offset calculator.
    $600000 loan for 20years
    $5000 a month payments
    $4000 a month put into offset
    Loans.com current rate 2.89%

    Calculator says loan reduced to 6 years 8months with the above payments with $137,203.00 savings in interest
    5000k a month payments even with 0% rates would still take 10 years.
    Are they assuming the money in offset at some stage gets transferred into offset probably once the interest rate becomes zero.
    They should explain this better for us less fortunate folk
     
  18. Terry_w

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

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    I don't know which calculator you are using or what it assumes, but as you build up money in the offset account it will speed up the repayment of the loan. This is because there is less interest being paid each month but the same repayments being made.
     
  19. Property Baron

    Property Baron Well-Known Member

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    loans.com calculator. But it cant be correct 6years and 8months cant be possible unless the money in offset eventually gets used to pay of the existing primary payments. Thats how I see it?
     
  20. Terry_w

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

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    sounds like an american website

    If the loan was $600k and you were paying $5,000 per month with 100% offset from day 1, and no interest every, it would take you 120 months which is 10 years. So it would be mathermatically impossible for it to be reduced to 6 years 8 months

    perhaps 'by' 6 years and 8 months might work.
     
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