The future of Australian property prices

[tech/a]

So you think it's fixed like a term deposit?
What would happen if you needed money for an urgent operation (say your brain example) you wouldn't be penalized for it if it were sitting in an offset account. It isn't tied up.

Rubbish

I take it out ---- I no longer get an offset.
Of course Im penalized. I no longer get the benefit.
Its tied up!---Unless Im happy to negate the benefit.

Just walk me through how Im not worse off using the
money in the offset account for my brain surgery.
Just type slowly so I can see how I can still recieve
an offset on my mortgage AND get a new brain?

If I cant do both then its TIED UP.
If I can only do one then its tied up! Infact if I take it out its TIED UP in the
cost of Brain surgery---or isnt it tied up there either?

Hang on ll bet a loss isnt a loss until you take the loss--Right?
If its just on paper then its not a loss right?
If you have $10000 worth of paper losses unless you liquidate those losses
you havent made a loss--RIGHT?

 

[kincella]

the money in the offset account is not tied up like a term deposit,
you are free to add and remove any amount you like
it is quite simple really, only the amount on the deposit offset account reduces the interest on the loan account
so while you may have funds sitting idly by
and if you have one or 10 mortgages
you can make that money work for you

geez
do some research and find out, instead of battling it out blindly here

 

[tech/a]

the money in the offset account is not tied up like a term deposit,
you are free to add and remove any amount you like
it is quite simple really, only the amount on the deposit offset account reduces the interest on the loan account
so while you may have funds sitting idly byand if you have one or 10 mortgages
you can make that money work for you

geez
do some research and find out, instead of battling it out blindly here

Understand it totally.
Pedantic rubbish about funds being tied up. By the Brain surgeon.

 

[KurwaJegoMac]

On the Noble Park property? I thought not that long ago you said it has dropped in price slightly

Not the Noble Park one - if you recall that's an IP. What I'm referring to here is my PPOR.

 

[pavilion103]

Hopefully the thread will welcome some comic relief:

http://www.news.com.au/realestate/renting/ask-the-property-professor/story-fndbatbk-1226534460846

I'm not sure if this was posted anywhere previously but it gave me more than a little chuckle at work!


Peter is the nicest of guys. I have spoken with him on many occassions. I actually did the property course at TAFE under him. I could have sworn I went back in time when I read this article! Amazing that the leading news service in Australia would publish this, even with the bullish bias the media has toward property!

 

[KurwaJegoMac]

Just to clarify some of the questions regarding the difference between offsets and redraws and how they work as there is a subtle difference between both.

Firstly - the offset account:

If you have a $400k loan and deposit $50k into the offset account, the lender will calculate your interest as if you had a $350k loan ($400k - $50k) however your principal is still $400k. The offset account does not pay down the principal.

Now the redraw facility:

If you have a $400k loan and pay $50k towards the prinicipal, you now have a $350k loan (principal). If you redraw that $50k, your principal goes back up to $400k.

--------------------------------------------------

In both of the examples above, you pay the same amount of interest as your effective loan amount is treated as $350k by the lender. From that perspective, they seem to be the same thing. Where they differ, is in the way that they are treated from a tax perspective:

Let's say, I have a redraw facility. Using the example above, I put $50k towards my $400k loan. The principal I owe to the bank is now $350k.

I now decide I want to purchase a holiday worth $15k. I utilise the redraw facility to take out $15k and purchase the holiday. From a tax perspective, I am considered to have taken a new loan for non-investment purposes. This means, that I cannot claim interest payments for that $15k. So even though I'm paying full interest on my new principal (loan amount) of $375k ($350k + $15k), I can only claim on my tax, the interest payments for the $350k portion.

Contrast this with an offset account, using the same figures above. If I withdraw $15k from my offset account, I can claim on my tax, the interest payments for the full $375k. Why? Because the money in the offset account has not been paid towards the principal, and therefore I am not considered to have taken out a new loan.

It's a subtle difference, which is relevant more so for investment properties. You can't claim interest repayments on PPORs so an offset account won't make any difference.

Hope that helps!

 

[prawn_86]

Hope that helps!

Perfect. Thanks KJM

 

[cynic]

Just to clarify some of the questions regarding the difference between offsets and redraws and how they work as there is a subtle difference between both.

Firstly - the offset account:

If you have a $400k loan and deposit $50k into the offset account, the lender will calculate your interest as if you had a $350k loan ($400k - $50k) however your principal is still $400k. The offset account does not pay down the principal.

Now the redraw facility:

If you have a $400k loan and pay $50k towards the prinicipal, you now have a $350k loan (principal). If you redraw that $50k, your principal goes back up to $400k.

--------------------------------------------------

In both of the examples above, you pay the same amount of interest as your effective loan amount is treated as $350k by the lender. From that perspective, they seem to be the same thing. Where they differ, is in the way that they are treated from a tax perspective:

Let's say, I have a redraw facility. Using the example above, I put $50k towards my $400k loan. The principal I owe to the bank is now $350k.

I now decide I want to purchase a holiday worth $15k. I utilise the redraw facility to take out $15k and purchase the holiday. From a tax perspective, I am considered to have taken a new loan for non-investment purposes. This means, that I cannot claim interest payments for that $15k. So even though I'm paying full interest on my new principal (loan amount) of $375k ($350k + $15k), I can only claim on my tax, the interest payments for the $350k portion.

Contrast this with an offset account, using the same figures above. If I withdraw $15k from my offset account, I can claim on my tax, the interest payments for the full $375k. Why? Because the money in the offset account has not been paid towards the principal, and therefore I am not considered to have taken out a new loan.

It's a subtle difference, which is relevant more so for investment properties. You can't claim interest repayments on PPORs so an offset account won't make any difference.

Hope that helps!

Great example KJM.

Another thing worth mentioning is that a proportion of the interest on a PPOR mortgage can become tax deductible if a redraw facility is utilised (in preference to an offset account) provided that the redrawn funds are used for investment purposes.

 

[KurwaJegoMac]

Great example KJM.

Another thing worth mentioning is that a proportion of the interest on a PPOR mortgage can become tax deductible if a redraw facility is utilised (in preference to an offset account) provided that the redrawn funds are used for investment purposes.

Quite right - a good point Cynic!

 

[jancha]

Rubbish

I take it out ---- I no longer get an offset.
Of course Im penalized. I no longer get the benefit.
Its tied up!---Unless Im happy to negate the benefit.

Just walk me through how Im not worse off using the
money in the offset account for my brain surgery.
Just type slowly so I can see how I can still recieve
an offset on my mortgage AND get a new brain?

If I cant do both then its TIED UP.
If I can only do one then its tied up! Infact if I take it out its TIED UP in the
cost of Brain surgery---or isnt it tied up there either?

Hang on ll bet a loss isnt a loss until you take the loss--Right?
If its just on paper then its not a loss right?
If you have $10000 worth of paper losses unless you liquidate those losses
you havent made a loss--RIGHT?

Fark! All what i'm saying is you have access to it if need be and unlike it being in a fix term deposit your not penalized for withdrawing it. Got it Chief?

 

[tech/a]

Fark! All what i'm saying is you have access to it if need be and unlike it being in a fix term deposit your not penalized for withdrawing it. Got it Chief?

Yes you are
Your benefit vanishes the second you take the money out.
Hence IMMEDIATE Penalty. Got it???

 

[young-gun]

I have some theories....

The housing market has withstood the GFC partially due to the fact, that people regained some confidence at a state level, when the labor party in each state were ousted.....I believe that confidence was gained on the premise that a conservative state government would rein in spending, reduce public waste, and retain jobs, all the important things people look for.
There was a renewed confidence leading up to each election, that labor would be tossed out.
Hence you did not see the projected depressed housing market.

There is a similar confidence the federal govnut will not be around after Nov 2013.
People felt confident under the Howard Costello reign, and are looking forward to those heady days returning.

They do not need to wait until the election is held, to change tactics. They are reasonably confident there will be a dramatic change with a new conservative government. They are allowing for a 'tough love' period while the budgets and cut backs are sorted out.
Hence the current confidence in the housing, and jobs market. The stock market has been showing similar confidence.
There is an enormous amount of money stashed away, just looking for a new home.
I believe the majority of people are moving in, are ready to take advantage of the new confidence that will flow, with almost immediate affects after the election.
There is no confidence whatsoever with the current federal government.

There has also been another interesting development, with a new government in Japan.
I do not believe it will all go gang busters next year, but I do believe there will be a quiet confidence that will prevail in the meantime, leading up to a return to a similarity to the Howard years by 2014 and 2015/
I do not see any dramatic deterioration in 2013. There will be job losses and businesses will continue to close down, or be taken over.
Finally the RBA has seen some light, with dropping interest rates, to give relief to the non mining states and businesses.
Fixed rates below 6% for 3-5 years should give you some clues as to the future direction. If you cannot handle those low rates, then you should probably forget about using credit.

This is the biggest load of **** I have ever read.

 

[jancha]

Yes you are
Your benefit vanishes the second you take the money out.
Hence IMMEDIATE Penalty. Got it???

Seriously? I thought the advantage in having an offset account was to save the interest off your morgage. Money you cant claim back and if you needed a brain operation like in your case you only had to withdraw the money without any penalties. Sure you'd be paying more interest after that but at least it's accessible.
Are you suggesting people should find better ways in investing their spare money? If so what should the average Jo Blow with be doing with it or would you be giving away your secrets of success? lol

 

[kincella]

tech,
technically you are not penalised...a penalty is like a fine, you are not being fined
you simply revert to paying the interest on the full amount of the mortgage

you can take your offset deposit and put it into an account that pays interest,
which is usually at a lower rate than the mortgage rate
the average mortgage rate at the moment is between 5.49 to 6.10 with the big lenders
the deposit rate is 3.5 or less

some may elect to split their loans between fixed and variable....
then choose which the offset account will attach to

some lenders will not allow an offset against a fixed loan, some will

if this is the case with your lender, then apply the offset against the variable portion
or the one with the higher interest rate (usually the variable rate)
some people have been stuck on a higher fixed rate....they locked in when rates were higher
this is another option available to reduce the interest on that higher rate loan

 

[young-gun]

Are you suggesting people should find better ways in investing their spare money? If so what should the average Jo Blow with be doing with it or would you be giving away your secrets of success? lol

I wouldn't call an offset savings account an investment There is plenty of stocks yielding good dividends at the moment. If you have enough in your account you could also use it towards another cashflow positive property. Not that I would be doing that in the current environment.

 

[Julia]

This is the biggest load of **** I have ever read.

+1.

The housing market has withstood the GFC

Again, this vast generalisation from kincella in the face of massive falls in some areas.

 

[jancha]

I wouldn't call an offset savings account an investment There is plenty of stocks yielding good dividends at the moment. If you have enough in your account you could also use it towards another cashflow positive property. Not that I would be doing that in the current environment.

No maybe not an investment but a safe place to have it sitting without being penalized when you do decide to take it out and invest.

 

[kincella]

any comments on why CBA would take the rest of Aussie home Loans ? and what it means for the future of property

dividends are a great source of income.....but who guarantees the capital behind my investment will remain in tact and not decrease.....
for eg what was the price of BHP in 2007 ? was it 55.00 or thereabouts
and what is the price now ?

 

[jancha]

any comments on why CBA would take the rest of Aussie home Loans ? and what it means for the future of property

dividends are a great source of income.....but who guarantees the capital behind my investment will remain in tact and not decrease.....
for eg what was the price of BHP in 2007 ? was it 55.00 or thereabouts
and what is the price now ?

Exactly unless you can read the signals on when to sell and buy... like some claim they can.
Old adage sell when people are buying and buy when people are selling. GFC was a good example.

 

[Ves]

Understand it totally.
Pedantic rubbish about funds being tied up. By the Brain surgeon.

I leave six months of salary in my offset account (it is effectively my 'emergency fund' should I need it for any purpose, job loss, medical, you name it). I don't think there is a better place for it. No where else can I get an interest rate equal to my mortgage.

An offset just gives me flexibility.

For investment loans using an offset is always better than paying down the loan. If you need the money for non-income producing or investment purposes the interest on the loan remains tax deductible if you take it out of the offset account.

If you are using a loan, and draw down the funds for a personal reason you will not be eligible to claim a deduction on that portion of the interest. Also good luck with the accounting fees for the accountant having to work out the portion of the loan that is 'quarantined' each year for tax purposes.

I don't see why you guys are arguing about 'offset' accounts.