Urgent - Confused as to how to structure my loan

Discussion in 'Loans & Mortgage Brokers' started by Clueless, 24th Apr, 2021.

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  1. Clueless

    Clueless New Member

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    Hi All,

    I'm currently in the process of refinancing and would like some advice as to how to structure my loan.

    Loan amount: 450K
    Savings: 170k

    Fixed rate ~1.8% (2 years)
    Variable rate ~2.5%

    Offset is only available on the variable component for the lender that I'm thinking of refinancing with.
    I think I could save approximately 60-80k over the 2 years.

    How would you suggest I split it? I was thinking of staying with my current lender that has the option of having a fixed rate over 2 years of ~2.1% with an offset facility but a lot of people are advising me that its best to have split structure.

    Your advise would be greatly appreciated. Thank you!
     
    Clueless, 24th Apr, 2021
    #1
  2. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    On that limited advice I would leave 80 k variable and fix the balance

    As an aside, an active debt recycle strategy may help you pay the loan off many or many many years earlier...........much more effective than worrying about a few points on rate assuming such a strategy sits with your risk profile

    ta
    rolf
     
    Rolf Latham, 24th Apr, 2021
    #2
  3. Clueless

    Clueless New Member

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    Hi Rolf,

    Thank you for the reply. In terms of the debt cycling, I've just had a quick read and not sure if this is something that suits me as I don't want to put myself in any extra debt. Having this mortgage is stressful enough for me as is.

    Also, why only 80k in the variable? Since I have a good junk of savings, wouldn't it make sense to have at least 170K in the variable so that I'm paying no interested? On the fixed portion I cannot make any extra payments.

    Or do you think I'm just better off fixing the whole thing at 2.1% with my current lender and have the 100% offset facility?
     
    Clueless, 24th Apr, 2021
    #3
  4. Tony Xia

    Tony Xia Structured Loan Advisor Business Member

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    You need to have a proper chat about your scenario, sometimes it's best to seek help of a professional that does this day in day out.

    Plenty of mortgage brokers on here that could help you out.
     
    Tony Xia, 24th Apr, 2021
    #4
  5. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    An active debt recycle strategy doesnt need one $ in extra borrowing :)

    sorry I overlooked the 170k, so 170 k PLUS 80 as variable

    In reality though I think you may be over optimising for a few dollars

    net balance of 200 k in 1.8 fixed vs 2.1 is around 600 a year............

    Unless you are getting a refi rebate the cost of the move alone is probs 2 times that ?

    ta
    rof
     
    Rolf Latham, 24th Apr, 2021
    #5
  6. costanza

    costanza Well-Known Member

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    :O could you explain? Say keep 170+80 = 250 as variable, and put money in the offset until you get to 249,999 pay down the loan to pull out again to invest -> this means you are borrowing an "extra" 250k right? Or it is just semantics, ie 250k in offset, but 250k variable loan, so you still have borrowed 250k?
     
    costanza, 24th Apr, 2021
    #6
  7. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    Depending on how much one can save

    Lets say it takes x mths to save 10 k.

    Depending on your loan set up,that 10 k will either be in the offset, or the loan itself

    Split the 10k off ( or in an ideal set up, use the master limit to move it to an IO Investment split) take the 10 k and invest in equities. For some, that will be direct shares, for others managed funds, for those that like set and forget ETFs.

    Doesnt suit all risk profiles, but most of a person's risk tolerance comes purely from education or lack thereof.

    Such a strategy can be double geared, so yes one can borrow extra in a margin, but that increases risk of long term capital loss if not handled conservatively and well...........remember Storm Financial.

    Not Advice for obvious reasons


    ta
    rolf
     
    Rolf Latham, 25th Apr, 2021
    #7