tech/a
No Ordinary Duck
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What am I missing here?
To offset interest on $500k loan I will need 500K in another account earning interest???
and I have offset accounts,
Initially in 1996---2000 yes.
I was putting zero down on a $100K property which I sold for $320K in 2003 (As an example).
PPOR a different kettle of fish.
My advice if it's your first home.
Look to either buy or build with the maximum Govt and or builder discounts
Some are matching first home owners grants.
Selection of "potential" capital appreciation is critical
Don't go for what you like more what you can potentially gain
Worst house in best street if your a DYI kinda guy/girl.
Look at areas of potential demand
Eg no more land releases for the forseeable future
New freeway or rail line.
Remember this will not be your last house.
Put as much as you can into the deposit.
Look at ways to get help with your mortgage
If your in a relationship that helps
Or take on room mates.
Pay down your mortgage as soon as you can.
If an un expected bill arrives you will be able to draw on a line of credit
Set this up if you have enough equity.
If you can make a quick dollar from say renovations or good buying
Then flip it and do it again ---- you'll not have capital gains on your PPOR.
I know a few couples who freeholder their home of $500k in 5-7 yrs doing this.
Remember you'll make the best deal at the point of purchase
A few weeks of negotiation could save $20-50k.
Always make an initial offer you think will be refused and insist that it
Is presented to the vendor in writing.
Write down everything you can think of and start ticking boxes.
Smart young people can lead the pack in 10 short years.
Each time you trade up you'll have more and more equity
Less re payments and more spare cas to put against the mortgage,
Good luck it's worth it!
I personally would not listen to advice like this. Mathematically it does not make sense and is based on the nostalga of compounding 10% price gains seen in the past 10 years.
I do not know the perfect strategy myself but I can see the above leading to over paying for a "renovators dream" and after minor unskilled renovations having a house on the market priced 100k above high quality dwellings which won't sell and for which the vendor cannot sell for less or he/she will go bankrupt and then in negative equity for a decade. Unable to sell, unable to renovate properly, constant problems in the house and shoveling away your wage into minimum repayments on the "home" which ruined your life.
Meanwhile the elderly baby boomer investor will be on a beach in Asia somewhere, talking about how his dedication, savings and hard work allowed him to ride a property boom. The timing just ins't the same.
Man you talk a lot of crap. Mathematically it makes sense and doesn't require 10% compounding price gains. Tech stated the price gains come from renovating and selling - using the extra cash generated to buy an upgrade and taking advantage of PPOR CGT exemptions.
Of course you have to do your research and know what you're doing - no sense putting in 50k worth of renos for a 50k gain in capital. I'm employing the same strategy and it's working very well for me. The issue is most people are too negative/lazy/undisciplined to do some hard work and think outside the box.
It's really not that hard. It's been less than two years and I have doubled my equity whilst still being able to do my day job.
Haters gonna hate, whingers gonna whinge.
Man you talk a lot of crap. Mathematically it makes sense and doesn't require 10% compounding price gains. Tech stated the price gains come from renovating and selling - using the extra cash generated to buy an upgrade and taking advantage of PPOR CGT exemptions.
Of course you have to do your research and know what you're doing - no sense putting in 50k worth of renos for a 50k gain in capital. I'm employing the same strategy and it's working very well for me. The issue is most people are too negative/lazy/undisciplined to do some hard work and think outside the box.
It's really not that hard. It's been less than two years and I have doubled my equity whilst still being able to do my day job.
Haters gonna hate, whingers gonna whinge.
tech a, obviously you are unaware of how offsets work
you do not earn interest on the offset account, and you do not pay interest on the equivalent amount of the loan
who has a mortgage of $500 k...not your average home buyer of FHB that frequent these threads
so if I have the average loan of $239k, and put up $100k in the offset account, I only get charged interest on the balance of $139k
makes a huge difference to the interest cost
to the other poster, Westpac do not allow another esaver account if you have held one in the past 3 months, and I assume the fine print for the other banks are the same
fine if one wants to keep changing and opening banks accounts to chase these amounts
I had a substantial amount in one account , believing it was earning 5.85 at the time, when no interest arrived and I checked, the bank had changed the rate to zero...they do not send you a letter, or call to advise the changes
the other poster on the average rate of tax...if you are on an income of $50,000pa your average tax rate is around 20%....big deal if the actual rate on $1000 of that money is 30%, so you put it into super, it is taxed at 15% upfront before it has a chance to earn any money. so it is not $1000 earning any income, it is only $850 and then the income is taxed at 15%...then you need to wait years for retirement to get your hands on it.
Some people would be better off having the $800 extra to pay off their mortgage, than to put it into super.
($1000 taxed at 20% average rate) than $850 sitting around for years for fund managers to take their cut each year, plus tax on the income
I look at the bigger picture
who has a mortgage of $500 k...not your average home buyer of FHB that frequent these threads
so if I have the average loan of $239k, and put up $100k in the offset account, I only get charged interest on the balance of $139k
makes a huge difference to the interest cost
We are toying with the idea of buying our 1st ppor in a couple years time. Even with deposit the mortage will be up around the 400k, there is just no other choice if one does not want to spend more than an hour travel each way.
So you're saying you get paid interest on the money in the offset account, and not charged interest on that equivalent amount off your loan?
Someone correct me if I am wrong but my understanding was; If you have a loan of 400k with an offset account, if you put 50k in the offset account (which doesn't earn interest like a normal HISA) the amount of principle you pay in each repayment is calculated as if your mortgage was 350k.
In short the amount in the offset account acts as if you made additional repayments to the loan which pays off the principle faster, but gives you the option to use or remove the money at will.
That is what i would of thought. So it is bascially a redraw account where you can redraw any additional payments you have made.
Would like to here from Kincella though
Why do you focus on average tax rates? The impact isn't made at the average rate, it is made at the margin.
You don't get a benefit to the effect of your average tax rate when you reduce your taxable income by making a concessional super contribution. It comes off the top not the middle.
If you don't think having $850 in super earning income at 15% tax for ever after is a reasonable solution to having $660 in your personal investment portfolio earning income at 34% tax at least, that's fine. I'm no massive fan of super as a young person anyway - there are far too many changes to happen in the next 35 years for me to want to save every dollar I can from the tax man by locking it up for 3 or 4 decades. I certainly don't advocate making extra contributions at a point in life when you're better off keeping the money in your hand to pay a mortgage that puts a roof over your head.
This isn't a point made factoring in different asset class returns or industry super funds with union muppets dipping their toes in, I just think that your attitude about average tax rates is stupid, and no-one seems to have taken you to task on it yet.
the other poster on the average rate of tax...if you are on an income of $50,000pa your average tax rate is around 20%....big deal if the actual rate on $1000 of that money is 30%, so you put it into super, it is taxed at 15% upfront before it has a chance to earn any money. so it is not $1000 earning any income, it is only $850 and then the income is taxed at 15%...then you need to wait years for retirement to get your hands on it.
Some people would be better off having the $800 extra to pay off their mortgage, than to put it into super.
($1000 taxed at 20% average rate) than $850 sitting around for years for fund managers to take their cut each year, plus tax on the income
I look at the bigger picture
so if I have the average loan of $239k, and put up $100k in the offset account, I only get charged interest on the balance of $139k
makes a huge difference to the interest cost
Ah--yeh
(1) So you need to have X available in spare cash to place in an offset account.
OR
(2) Make higher payments so you can offset an amount over time.
Fine provided you cant do better than bank interest on the amounts being tied up.
Again your being a very good client offering the bank even more security with your money.
Like going into the bank asking for an overdraft and they want cash security.
So why not use your own cash in the first place!!
Money in an offset account isn't tied up for starters Tech.
Really?
If I take it out they still offset the interest against my mortgage?
Of course its tied up! I cant use it.
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.
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