Advice on Which Type of Home Loan to Go for!

Llannie07 on 07/08/2019 - 08:36
Last edited 07/08/2019 - 08:43 by 1 other user

I’m looking to get a home loan to buy my first house, I have had very little advice and with so many lenders and loan types available I’m feeling a little confused and overwhelmed.

I have been speaking to ING and they’ve advised they have 3 products:

1) fixed 3.69% 2 yrs
2) variable - off set 3.33% with annual fee $299
3) variable - redraw 3.28%

I’m also aware there are options for interest and principal and interest only. Whilst I understand the basic principles of what they are I would like to understand the long term advantages and disadvantages of all the various types of loans. Also, how long are the payments fixed for, and can I pay off more than my agreed monthly amount if I want to?

Would also be interested to hear if anyone knows of any other / better offers or any general advice for what to look for, questions to ask etc.

Thank you 😊

• 

  Seedy seed on 07/08/2019 - 08:40

  I went through tictoc who use adelaide bank. Offset was $10 a month not $299 a year, so thats $179 cheaper already…

  Talk to a broker.

  • 

    onetwothreefour on 07/08/2019 - 14:30

    I'm also with tic toc on a variable with an offset, no problems so far.

    • 

      Seedy seed on 08/08/2019 - 08:53

      Was variable, they offered switch to fixed at a lower rate then they had just raised mine to so im fixed atm 😂

      • 

        onetwothreefour on 08/08/2019 - 09:31

        Can you have an offset with the fixed rate?

        They've lowered the variable rate twice in the past few months but I'd be interested in a lower rate if I can keep my offset.

        • 

          Seedy seed on 08/08/2019 - 11:40

          @onetwothreefour: Idk bout yours but because they offered it to me i was able to. Im pretty happy atm

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  Fergy1987 on 07/08/2019 - 08:48

  +2

  If you have a bunch of money left over - Get a 100% offset account.

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  nocure on 07/08/2019 - 08:50

  +3

  State Custodians: 3.15% variable, 100% Offset, Redraw, NO fees.

  • 

    BuDWiZe on 13/08/2019 - 07:06

    +1

    I'm looking to knockdown and rebuild and thats a much better deal then now. Will check out

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  trustnoone on 07/08/2019 - 08:52

  Not sure if these answers are correct as I'm in a similar position, as far as I know, fixed is for 2 years as you have written above, you can't pay off any extra, the idea is you're kind of gambling I think, so if the rate goes up beyond 3.69% you're winning because you still stay at the lower amount, but if the rate is lower, you lose out because you could be paying say the 3.28%. I think after the fixed rate it goes down to variable?

  Apparently you also need to check out the 'comparison rate' not just the rate, because the comparison rate is meant to hold all the extra fees that you might not see, or don't know if a bank has (admin fees etc) that may offset normal rate.

  Basically with variable I think you can put as much or little money you want in there, I don't know if this is correct but I think redraw means you can pull your money out when you need if you put too much in there. For example say you have $10,000 but at this point in time you only need to pay $5,000 all up, you have $5,000 you can redraw out. The idea is that since you have your excess money in that account, it still goes towards your loan so you pay less in interest, but you can still redraw it out to buy stuff.

  Not sure how number 2 differs, does it also have a credit card included maybe?

  • 

    Ughhh on 07/08/2019 - 09:17

    +3

    Afaik, Offset is basically the same as redraw, except it opens more doors for investment opportunitys in the future. Money in offset offsets the interest, but not the balance itself.

  • 

    dasher86 on 07/08/2019 - 09:42

    Comparison rate can be useless if you're not comparing the same loan amount quoted, or even if there is an 'introductory rate', as the comparison rate defaults to the non-discounted rate after the intro period.

  • 

    [Deactivated] on 07/08/2019 - 11:51

    If there's any chance at all that you will turn the property into a rental property in the future, you want the offset. If there's absolutely an iron clad guarantee that it will only be your primary residence or you will sell it, save the fees and use a redraw.

    There are tax implications if you use a redraw and later convert it to an investment, which can't be fixed retrospectively, make the wrong decision when taking out the loan it can cost you thousands per year later.

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  Skramit on 07/08/2019 - 08:57

  +1

  1) fixed 3.69% 2 yrs

  YIKES. That is expensive. Avoid or negotiate a better rate.

  2) variable - off set 3.33% with annual fee $299
  3) variable - redraw 3.28%

  https://www.macquarie.com/au/personal

  These guys are advertising 3.24% on their home page with offset and $149 fee, includes credit cards, apple pay etc. Tier 2 bank with good customer service. So the ING deals you posted are behind already. Plus depending on the loan amount you can possibly negotiate an even better deal.

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  theHMASfriendship on 07/08/2019 - 09:03

  -2

  As long as redraw is unlimited and fee free then you can largely treat it like an offset account.

  • 

    [Deactivated] on 07/08/2019 - 11:49

    This is what I thought, but it is potentially dangerously wrong. It absolutely makes a difference if you later move without selling and turn the property into an investment. You basically can't use a redraw on a property that becomes or is an investment property. (There are heavy tax and paperwork costs for doing so).

    • 

      jjjaar on 07/08/2019 - 11:53

      But at that point you would also have to refinance to an investment loan? So you could redraw all the money and put it into another account and then place it into an offset associated with your new investment loan.

      • 

        [Deactivated] on 07/08/2019 - 11:55

        The ATO won't allow you to do that. The amount of interest you can deduct is based on the minimum balance of the loan (or any previous loan) ever got to.
        So if you have a $100,000 loan, and you pay off $80,000 then redraw the $80,000, refinance a new loan for $100,000 the ATO will only let you deduct 20% of the interest, forever.

        So the refinancing gives you a paperwork mess (any repayments are apportioned 80% to the non-deductible debt) and no tax advantage (you actually end up worse than just not refinancing to the higher balance).

        Offsets don't technically alter the loan balance, so the ATO is ok with using them and taking away the money later.

        When you redraw the ATO treats it as a 'new loan' and looks at the purpose of the redraw, not the purpose of the original loan, to determine if it's deductible.

        To be clear, you can turn the property into an investment later, it's just you lose the tax advantages. If you have another primary residence that has a loan against it instead, you don't gain anything by transferring the excess funds to that. If you have no other non-deductible loans, it doesn't matter, but most people do.

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  Ughhh on 07/08/2019 - 09:13

  I was in a similar boat not long ago. There are loads and loads of info on the net that answer your questions, pages from banks to mortgage brokers and media. Do some googling then seek a mortgage broker.

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  backpack on 07/08/2019 - 09:14

  +1

  We got loan with CUA their rates are not bad. Just been looking into another loan and got a quote from loans. Com. AU and reduce but not sure about these guys as they are not bank. Check reviews for ING as they tend to increase the rate for existing customers down the track

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  dasher86 on 07/08/2019 - 09:44

  Talk to a broker as well.

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  ESEMCE on 07/08/2019 - 10:28

  +1

  Offset Variable in this environment..
  Variable because the interest rate is more likely to remain on hold or decrease in the coming years than increase.

  Offset because it is superior to Redraw for tax purposes in the event that you ever want to rent out your property.
  Ideally of course you don't want to pay for the Offset Facility if you don't have any plans to rent out the property in the future.

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  tellhimhesdreaming on 07/08/2019 - 12:59

  I found that a lot of the advertised rates had lending restrictions in my city. Eg. TicToc are awesome but wouldn't touch any aprtments with more than 6 units in a complex or 2 storeys high. Macquarie looked great but would only lend with a 30% deposit, would rather have the extra 10% sitting in the offset for emergencies rather than in the home loan… ING looked reasonable but wouldn't/can't do multiple offsets.

  Find a few rates/products you like and start calling around to see if they're applicable for your circumstances/area

  It looks like I'll end up with a slightly more expensive product because we wanted multiple offset accounts with 20% deposit where we live, but long term it'll be better for our sanity and budgeting.