Extra Repayments on Personal Loan Vs Keeping in Offset

AlanHB on 12/04/2020 - 22:25
Last edited 13/04/2020 - 08:15

Hopefully this is a pretty straightforward question.

About to get a new home loan of $820k. Joint tenants/co-owners with GF. GF has personal loan of $40k. I make a little under double what GF makes (her $70k, me $132k).

I have decent capacity to put extra cash towards offset, but could put a portion of that towards GF's personal loan to pay it off faster, which would also free up her capacity to put more money towards offset (which would benefit us both).

House is at variable rate. Current 2.8% but likely to rise later.

Personal loan is at 9.85% fixed.

In terms of financial stuff, would it be better to make extra repayments towards personal loan or keep that cash in the house offset?

Edit: Changed incorrect reference from "tenants in common" to "joint".

Also we've been going out for 11 years, living together for 10.

Financial

Comments

  • dcep on 12/04/2020 - 22:28
    +19

    if your money is your money, her money is her money, then keep it in offset

    if your money is her money, her money is your money, then pay off her personal loan

    if your money is her money, her money is her money, then how much do you love her ?

    • AlanHB on 12/04/2020 - 22:52

      Thanks for the response dude, I was unwilling to repay her debt while renting (nor did she want me to), but if there is a shared mortgage it would benefit us both to have the loan repayment amounts in offset rather than going to 3rd party.

    • TheMindsetTraveller on 13/04/2020 - 08:03
      +2

      i think you missed one, other than that, excellent response!

      If your money is your money, her money is your money, then pay off her personal loan

      • AlanHB on 13/04/2020 - 08:12

        Well I wouldn't say her money is mine (because that denotes some sort of ownership of her that I'm not keen on), but freeing up her finances would benefit us both in the future with the shared mortgage.

        Is that what you're hinting at?

  • Donaldhump on 12/04/2020 - 22:40
    +1

    how much cash do you have in hand to put in the offset? if its well over 40k then pay off the personal loan.

    and of course its financially better to pay off the higher interest loan first.

    why tennants in common? you would have to garuntee each others loans im sure that would be a nightmare if things go wrong / dont have a will, unless the split isnt 50/50.

    • AlanHB on 12/04/2020 - 22:55
      -1

      Thanks for the response dude. I don't have enough to pay off the loan yet, but have the capacity to do so in a short period of time.

      For tenants in common, I probably should have mentioned that we've been going out for 11 years, living together for 10, so enter into the same arrangements that any married couple would. We provide eachother support and think she has equal right to a shared property.

      So yes, full intentions for property to be split 50/50, even if I technically contribute more $$$.

      • Donaldhump on 13/04/2020 - 06:54
        +2

        So why tenants in common? Just buy it as joint tenants (the default way)

        • AlanHB on 13/04/2020 - 08:14

          Sorry, I mixed the terms up. Late night. We will be joint, co-owners of the property.

  • [Deactivated] on 12/04/2020 - 22:49
    +5

    Pay off highest interest debt first.

    • AlanHB on 12/04/2020 - 22:55

      Cool thanks :)

  • zaddaz on 13/04/2020 - 01:07
    +5

    10 years means de facto partner, not GF. So all money is shared money.
    Pay off the personal loan, unless it has a large penalty for early repayment.

    • AlanHB on 13/04/2020 - 06:18

      Thanks mate, it seems to be the consensus.

  • TheBilly on 13/04/2020 - 06:37

    Personal loan. Otherwise you save 3% in offset but loose 6% on personal loan. Also no more loans beside mortgage. Cancel individual PLs and Ccs. If you share debt, you now share debt decisions as well.

    • AlanHB on 13/04/2020 - 08:21

      Thanks mate - sounds like a plan.

      I'm almost thinking to approach it this way:

      • keep a level in my savings account (which will be offset)
      • every payday, pay off credit card/bills/minimum mortgage repayment, top up savings to level
      • anything extra goes to personal loan

      Does that sound like a good strategy to you? My savings won't grow, but loan will be attacked more aggressively.

  • SnoozeAndLose on 13/04/2020 - 07:17
    +4

    Op your relationship is De facto, it is no different as married couple just missing both signature on a piece of paper. When break up, anyone can ask the other half of what they have, so it doesn't matter what you have contributing now. Pay off higher interest debt first.

    • AlanHB on 13/04/2020 - 08:21

      Sounds good :)

  • Euphemistic on 13/04/2020 - 09:09
    +1

    Whatever you do make sure it’s a mutual decision.

    I’ve always thought that for a proper couple there is no (or very little) her money v his money. It’s all ‘our’ money. In which case, pay off the loan with the highest interest.

    My exception to all ‘our money’ is if you have a mutually agreed and equal allowance for no question personal spending - ie for wants not needs.

    • AlanHB on 13/04/2020 - 10:32

      Sounds reasonable to me :)

  • vssv on 13/04/2020 - 12:55

    It depends on how she spends her money…!!!

    • AlanHB on 13/04/2020 - 14:43

      Haha fair enough. Pretty frugally right now! Not much left after loan payment and rent/bills/food.

  • lainey13 on 13/04/2020 - 20:05
    +1

    Pay off her loan. But she owes you now :)

    • AlanHB on 13/04/2020 - 20:22

      She can put the cash towards our house instead. It'll be cool :)

  • Cheapskate Paul on 13/04/2020 - 21:40
    +2

    I would only pay off her loan if she promises to not take on any further debt. $40,000 sounds like a lot to me for a personal loan, and was possibly a very poor decision at the time. You don't want a repeat of that.

    • AlanHB on 14/04/2020 - 06:48

      I agree, and made sure she committed to this prior to us getting a house.

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