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First Mortgage

Discussion in 'Real Estate' started by MasterCheif, 28th Jan, 2008.

  1. MasterCheif

    MasterCheif Active Member

    Joined:
    22nd Sep, 2007
    Posts:
    43
    Location:
    Melbourne
    Hey All,

    I just has my offer accepted for a my first IP!

    a 316k 3 bedroom house in Victoria.. All very exciting and scary! First mortgage..i will be renting this out for 275 a week, for the first 6 months, then living in it for the next 6 months to obtain first home owners grant..

    I have decided to go with ING Mortgage Simplifier.. is this a good choice?

    Also i have a question about paying off the loan faster.. if i make additional repayments, does the minimal repayments reduce as the loan is reduced..

    For example i will be getting a 270k loan which has minimal repayments around 2k a month, if i pay it down to 200k fairly quickly will the min repayments be reduced, so that i can eventually pay off the mortgage simply with the rent..

    Sorry if this is a obvious question but new to how mortgages work..any comments/hints/suggestions would be great :)

    Cheers.
     
  2. Billv

    Billv Getting there

    Joined:
    15th Jul, 2007
    Posts:
    1,796
    Location:
    Sydney, NSW
    Mastercheif

    If you pay more you will be reducing the interest component.
    You will still be paying the same amount each month but
    the principle component of the monthly repayment will be getting higher
    and the interest amount will be smaller.

    I am not familiar with this loan.
    However, I should point out that many people these days go for loans with 100% offset account and don't pay off their loan. They simply leave unused money into their offset account and it basically has the same affect as paying down the loan.

    This way, if they ever decide to move out of their PPOR and to rent the place out, they can take their money with them and the part of the loan that was preciously offset stays tax deductible.

    If they had not done this and instead had chosen to pay down the loan they can still take their money with them but in this case redrawing the money out does not make that part of the loan tax deductible.

    Cheers
     
  3. tonyused

    tonyused Active Member

    Joined:
    9th Jan, 2008
    Posts:
    32
    Location:
    Perth, Western Australia
    The ING Mortgage Simplifier loan is a basic loan. Means it does not have offset facility, is P & I, etc.
    Lend at 100% LVR owner occupier and 95% investment.

    Wether is the correct loan choice will depend on you future investment strategy.

    For first home buyers where it will be PPOR it's the type of loan you want & can afford eg 100% LVR.

    For use on an investment property it's not the type of loan to get. Where you are looking for interest only, mortgage offset type on loan to take advatage of tax benefits to the upmost.
     
  4. MasterCheif

    MasterCheif Active Member

    Joined:
    22nd Sep, 2007
    Posts:
    43
    Location:
    Melbourne
    Hey..

    Thanks for the replies..

    can someone please tell me what the tax benefits of having an offset account are?..

    If i put additional funds into the mortgage, and then redraw excess funds when/if required, how is this bad? Rather then storing addional funds in an offset account and then withdrawing when required.

    Thanks in advance..
     
  5. tonyused

    tonyused Active Member

    Joined:
    9th Jan, 2008
    Posts:
    32
    Location:
    Perth, Western Australia
    The tax benefits arise due to the use of the funds - for private use, no tax deduction for the interest incurred - for investment, tax deduction.

    If you pay off more on your ING loan then withdraw it for private purpose the interest on that portion of the loan is not deductable.

    If you have an offset account, you do not have to pay more off on the loan. It stays the same its charactor never changes. The saving is in keeping your money on a separate savings of cheque offset account which will save the interest expenses, if required.
     
  6. Billv

    Billv Getting there

    Joined:
    15th Jul, 2007
    Posts:
    1,796
    Location:
    Sydney, NSW
    It's not bad, but if you don't use those funds for investment purposes
    the interest on the increased loan amount won't be tax deductible.

    I don't know the exact structure of this loan but you need to be careful
    and you should consider any tax implications if in the future you decide to turn this property into an IP.

    Cheers