Repayments with full offset

Discussion in 'Loans & Mortgage Brokers' started by Patricia, 29th Apr, 2020.

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  1. Patricia

    Patricia Well-Known Member

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    Any broker can tell me if I have 255k loan (principal and interest) and have it fully offset, how much do I pay the bank per month? Is that 255k/360 months equal $700 for each month? I cannot find any repayment calculator for this full offset. Thanks.
     
  2. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    the full PI payment

    ta
    rolf
     
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  3. Terry_w

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

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    You will pay the same amount as if it was not offset. Offset makes no difference to the repayment amount if the loan is PI, but your loan will be paid off much faster as there is no interest. With some banks you can periodically reduce the minimum repayments as the loan pays itself off so you can delay or slow the decrease.
     
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  4. Patricia

    Patricia Well-Known Member

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    Can I refinance to get it back to IO payments, as there is obviously no incentive if we leave the money for offset there?
     
  5. Patricia

    Patricia Well-Known Member

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    Can we redraw the interest portion?
     
  6. Morgs

    Morgs Well-Known Member Business Member

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    You may be able to refi to IO subject to assessment. You can't redraw unless you're making additional repayments.

    You are getting benefit from those funds in offset.... you're not paying any interest so the whole scheduled repayment is principal.
     
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  7. Terry_w

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

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    no, but you will get ahead on repayments so you could potentially have an amount available for redraw
     
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  8. Patricia

    Patricia Well-Known Member

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    We just want minimum repayments. That's our PPOR but can potentially turn to an investment property.
     
  9. Peter_Tersteeg

    Peter_Tersteeg Mortgage Broker Business Member

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    Principal & interest repayments are calculated using the loan limit, interest rate and the original loan term.

    Offsetting the loan doesn't change any of these parameters, so regardless of how much money you've got in the offset account, the repayments stay the same.

    In this case, the good news is that with each repayment, no interest will be charged as there's technically nothing owing (due to the loan being fully offset). The entire repayment will be principal and the outstanding loan amount will be reduced by the same amount as the repayment.

    When I've been in this position I simply had the repayments come from the offset account and I did my banking via a different account. As a result that loan had no effect on my day to day cash flow.

    If you intend to make the PPOR into an IP within the next few years, it's not going to erode your savings in the offset account by that much and you could probably replace it with other savings.

    If the property change is a longer term strategy, you may find it difficult to get an IO loan for that long anyway. A longer IO period would also have a greater cash flow impact when the loan inevitably reverts to P&I repayments anyway.

    Overall I'd say there are strategies you can employ using P&I repayments and a full loaded offset account that likely have just as successful long term outcomes as an IO loan would.
     
    Last edited: 29th Apr, 2020
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  10. Terry_w

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

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    A 30 year loan will pay itself off in about 14 years even with minimum payment if it is fully offset.
    Loan Tip: If a PI loan was fully offset how soon would it be repaid? Loan Tip: If a PI loan was fully offset how soon would it be repaid?

    You will also be costing yourself money if you also have investment debt

    Strategy: Don’t Keep Large Sums in Offset Accounts Strategy: Don’t Keep Large Sums in Offset Accounts
     
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  11. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    Dribs and drabs of data may confuse what your real needs are

    Pls Sit with broker / banker and get it nutted out, while its not rocket science, one also needs to know that loans aint loans, and without a structured guided discovery process, the produxt mix structure is usually let wanting

    The older I get, the less I know

    ta
    rolf
     

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