Say I ask for $300K loan, good for 25 years, then after 4 months I could pay $150k outright from my matured fund.
Will this be costly in terms of recalculation and breaking fees and all those financial-related stuff, or would it be better to wait for fund maturity
then ask for just $150k bank loan?
Which one is feasible? Which one would cause more banking fees?
Buy now. Put $150k in offset account.
Winning.
Depends on the loan terms and conditions and how soon you want the loan.
A fixed interest rate loan usually has break fees but you may be able to pay back a lump sum once a year (eg, $10k depending on the terms of the loan). A variable interest rate loan usually does not have break fees so you can repay more and possibly redraw the additional amount. Note there may be tax consequences of doing so if it is an investment loan. A variable interest rate loan with an offset account, where you deposit additional funds in the offset account to reduce the loan balance should not have any break fees.
So in variable, the offset account will just be deducted from principal, but the interest will still be calculated based on the original amount borrowed, or a new calculation takes effect?
but the interest will still be calculated based on the original amount borrowed, or a new calculation takes effect
Interest calculated on the current amount owing, of which the offset fund is reducing
interest is calculated daily on the total you owe by 5pm. So it will be calculated on $300K at first, and later on $150 K when you put in the extra $150K
Do you have the means to repay a $300k loan? What are you doing with the funds. Is there any disadvantage to waiting 4 months?
I have the means to pay half of that in 4 months for sure, the money is just sitting in a time deposit account opened during the pandemic, I could break it open but there's a termination fee as well. There's no disadvantage other than the houses I'm really keen on putting an offer now, might not be available in 4 months, but at the same time, there's no guarantee that i'll get the house even if I don't wait for another 4 months, I'm just weighing my options on fees and how to avoid losing more money on fees…
The interest rate on term deposit will be pathetic however, with only four months to go - I'd say no need to take it out. With home loans rates now 3 times as your yield rate, four months may just break even against having to pay interest on $150 for four months.
you could also ask for a 90 Day settlement. Pay 10% or 20% deposit and the rest after 90 days.
@kiwiyonip - You could also ask for a 120 day settlement when you put your offer in. Settlement can be done in 30, 60, 90 or 120 days — they are the most common ones. Your $150 K in term deposit will ease the mind of the Sellers who know you have the money to pay— so you may be the more attractive buyer.
Why not invest elsewhere and wait for the housing market to tank? And if it doesn't tank, just move to outer Adelaide.
I'm not investing, just wanting to stop renting, Adelaide is great, but I'm stuck in this hell hole…
It will cost you nothing if you get a Variable home loan with an offset account.
Transient explains it well above.
You use to be able to get Split loans - eg. 50% fixed, 50% Variable where you could pay off extra up to the Variable amount every year without any penalty, but still have certainty on the fixed amount of your loan.
A lot of banks give better rates if you borrow a minimum of $250 K , so you might be better off applying for the $300 K Variable loan with a Mortgage offset attached, and then putting in your $150 K when it matures- to answer your question it will cost you nothing to do this.
Thanks, will take note.
Just get an offset account and put the 150K in the offset. You will only pay interest on the difference and been given the flexibility to take the money out whenever you want.
Hey guys,
Kinda off topic, why would the OP not pay 150k off their 300k loan? If the 150k is in the offset account, wouldn't it be kinda the same/same even if they did put the 150k in the mortgage as the mortgage will now be 150k thus lower interest and repayments?
I understand offset accounts you can access your money, but what happens if the OP doesn't need the 150k?
Sorry, still trying to get my head around paying a chunk off a mortgage vs offset.
Okay I'll have a stab at this. If he puts the whole $150k into an offset account, then when interest is calculated on his loan it is worked on the loan balance LESS the offset balance. Meanwhile the funds are available to OP to take out of offset if / when he needs them.
If he pays the funds directly off the loan, they can be paid in two ways - firstly as a permanent principal reduction, which will recalculate the loan repayments based on the reduced balance over the remaining term, but funds will no longer be available to OP - or as a payment in advance, in which case the payment will reduce the loan balance but be available to redraw if / when required. If the latter, then those advance payments/ available redraw will reduce each month - this has to happen, otherwise loan can reach nearly the end of the contracted term at which point OP decides to redraw that large advance payment, say two months before the end of the loan term, leaving him two months only to repay the remaining balance after the redraw.
And if the property is investment then there's a whole other layer of complexity when you consider that funds taken out of an offset account have no strings attached, but for an investment if you take funds out of redraw then the interest on that portion of the loan is no longer deductible, unless the withdrawn funds are used for another documented investment purpose.
Thanks for this follow up question, and @miwahni
I just learned there's also the LMI component to it when borrowing $300k vs. $150k, significant amount to consider.
The fees are pretty much the same for both option. The cash flow will be different unless you refinance .
I've done this, just get a loan that has no penalties for early payments or early exit.
I used Westpac at the time - had a loan that matched my criteria.
It's all paid off and sits there as a line of credit I can draw on if needed.
I am a mortgage broker.
You are in a good situation. Get a variable rate loan. No penalty to pay extra on those ones.