Paying home loan out in full or cancelling before settlement

Zawoooo on 28/07/2020 - 21:34

hello all,

My wife and I are just about to sign a contract for our first home and looking at a 6 week settlement

We had planned to buy it outright as I have some inheritance coming my way in the very near future but it turns out it will be cutting it to close to our settlement date to rely on it without getting a home loan.

So essentially I'm looking for a home loan which I could either cancel before the settlement date or one that I could repay in full very soon after the settlement date.

Am I going to struggle to find a load which allows me to do this without loosing $1000's in fees and penalties.

I'm speaking with a broker tomorrow but I would ask here firstly.

Thanks

Financial

Comments

  • redfox1200 on 28/07/2020 - 21:38
    +13

    just get a loan with an offset facility then pay it out when ever you want to

    • MechEng on 29/07/2020 - 09:09

      ^ This..

      • Zawoooo on 30/07/2020 - 12:31

        This is probably the path we will take, thanks

  • TheAccountant on 28/07/2020 - 21:39
    +8

    Is it possible to delay settlement?

    • Zawoooo on 30/07/2020 - 12:31

      It isn't possible but cant get an accurate date on when the funds will arrive and we are very over renting

  • [Deactivated] on 28/07/2020 - 21:56
    +6

    Delay settlement or take the loan and consider the few thousand as insurance.

    Taking the loan isn't actually a bad idea even if you can pay in full. Paying a thousand bucks to have a million dollars at your disposal is very much worth it.

  • kingsville on 28/07/2020 - 22:02
    +1

    How about you get a loan with offset account - that way you can park the full loan amount in the offset when it arrives and you'll be paying zero interest.
    If the annual fee is negligible, keep the loan for a while.
    You'll still have to pay a fee to reclaim the title when you close the mortgage.

  • YTW on 28/07/2020 - 23:50

    So you're effectively needing something like a bridging loan - I wonder if you could get one of those with your different circumstances. Could be worth asking about.

    https://www.canstar.com.au/home-loans/bridging-loans/

  • saintpotter on 29/07/2020 - 07:28

    Broker

  • RM on 29/07/2020 - 08:38
    -1

    If you can manage, take the loan and invest the inheritance…eneloops or a high end car

  • Archi on 29/07/2020 - 08:48
    +3

    like others have said with an offset account.

    that way in the near future you want money to invest in a business or buy property again, you don't need to stuff around to get a loan, you'll have a substantial amount of money up front pretty mush instantly

  • redforever on 29/07/2020 - 09:37
    +4

    Can your income sufficiently service the loan without the inheritance? If no, delay settlement.
    If so, get one with offset like everyone else suggested above.

    Not sure you should mention this to a broker until you pay them for their service. They won't make anything if you don't proceed with the loan or very little if paying off in a short time.

    • oohaah on 29/07/2020 - 10:34
      +2

      agree with above, would not be telling the broker.

    • Zawoooo on 30/07/2020 - 12:32

      Yes our income can easily cover the loan repayments without the inheritance, bit to late unfortunately i came clean with the broker however i did say it could potentially take a long time to come through but there is a very small chance it may come through before settlement

      • redforever on 30/07/2020 - 13:18

        No need to stress about it. You have disclosed it and if he still entertains you, its his decision.
        Did he ask for payment for his service if you dont proceed with the loan?

  • netjock on 29/07/2020 - 11:14

    Alternative view. If you can get a fixed rate loan for 2.29% you could invest the money. The index is paying like a 2 - 3% dividend. Otherwise use offset account.

  • [Deactivated] on 29/07/2020 - 12:13
    +1

    If you're planning to stay there forever or definitely only going to move if you sell then if the few thousand in fees is more than it will cost to delay settlement you can delay. There are some advantages to having a loan though.

    If you have an offset, then if you decide to move to a new home and rent it out, you can take the money from your offset for your next home and get tax deductibility on the initial loan. (You cannot do this with a new loan made after you buy the property or a redraw, this is important to know now).

    If you just have a redraw rather than an offset and you pay down 99.999% immediately you have money available for emergencies / investing at a low interest rate and generally these loans are available with no ongoing fees and if the redraw is almost at 100% you pay no interest (I've had $20-$50 remaining on my loan for years which I pay off at $7 a month :o - If I paid it off there would be a fee as it's quite an old loan, but there's no ongoing fees to just keep the loan open.

    Additionally there are potential security advantages to the bank holding the title, it's extremely rare but there have been instances of people having their home sold from under them due to sloppy checks by agents etc, and the new owner who buys the house actually ends up being the legal owner if they've done everything properly which is nuts.

  • Youfah Mizzum on 29/07/2020 - 12:49

    FWIW, I'd invest the inheritance in an ETF or managed fund.

    Look at it like this…
    You're paying what…4% interest on the mortgage? It's pretty cheap money.

    Yet chucking your inheritance money in a ETF (plenty of sites online which describe what they are) or a managed fund will easily earn you upwards from 8%, heck some I have seen have historical earnings well into the teens. Disclaimer - past earnings are no guarantee of future earnings. But you'd think they'd be indicative.

    Even if you keep your money in an offset account - it's still only saving you 4% interest on the mortgage. Might as well have it working a little harder than that!

    • [Deactivated] on 29/07/2020 - 13:09

      If they split the home loan and put the inheritance into the home loan and then withdraw a separate portion to invest then the loan is tax deductible, whereas it's not if they just put the inheritance straight into an ETF.

    • Zawoooo on 30/07/2020 - 12:38

      I agree but the wife just wants to play it safe, have the house ~900k completely paid off then maybe dabble in some investing is the current plan

  • cupcake on 03/06/2022 - 15:32

    Update please.
    Did you buy a house on a flood plain?
    Did you get your inheritance and then pay off the new home loan immediately?
    Were you penalised for paying it off right away?

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