Home Loan: Borrow More vs Less & 30yrs vs 10yrs

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  captobvious on 21/06/2017 - 21:03

  Go for borrowing less and the offset account option especially if it is going to be your ppr

  30yr loan and borrow your max is more used for investments so you can offset your tax etc and hope for equity.

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  chumlee on 21/06/2017 - 21:05

  Depends what you end up doing with the $250K long term??

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  MondaySleeper on 21/06/2017 - 21:39

  I would also like to know this. I just a loan approved for 680K. I could actually go with 500K as I have some spare cash but decided to go with full loan as I need some cash as a contingency measure. I did some calc and couldnt find much difference.

  • 

    vinni9284 on 21/06/2017 - 21:57

    +1

    I would go with the full loan. Why? as you have mentioned, contingency measure. Life circumstances change, jobs are not stable like they used to be and you might not get the opportunity to borrow this amount again. (It depends on your finances etc)
    Utimately it is important on how you can control your spending of course.

    I believe that you can 100% offset the max borrowed amount and the higher repayments will take affect when you withdrawl the money.

    E.g. 680K - 100K savings = 580K in repayments p/m
    Take out further 50K then 620K in repayments p/m

    Disclaimer: I am not a financial planner or broker :-)

    Cheers

• 

  garetz on 21/06/2017 - 21:51

  +1

  "borrow 80% ($400k) over 30yrs, but then you still put your whole $250k cash in offset acct."

  This, not only are you reducing your repayments, you also give yourself access to your money when you need it, as long as its a 100% offset, and none of those partial offset scam loans.

  There is a little known mathematical fact, but in first 6 years of a 30 year loan, you pay 30% of the total interest payable of the loan, so within 20% of the loan length, you pay 30% of the total interest. That means the offset is more effective from day 1, than day 2190.

  btw, you can use this calculator as a proof of concept, as for the %'s go. also enter in your data for comparisons sake.
  http://www.amortization-calc.com/

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  tsunamisurfer on 21/06/2017 - 22:47

  +3

  Scenario 1.

  Sink all savings into apartment and borrow 250k for 10 years.

  Assumptions :

  Interest = 5%
  Term of loan = 10 years
  Repayment frequency = Monthly.
  Offset amount = $0

  Monthly repayment = $2,651.64 / month
  Lifetime interest paid = $68,196.55 over 10 years

  Calculator used - https://www.bankwest.com.au/personal/calculators/home-loan-r…

  Scenario 2 - Borrow 80% ($400k) over 30yrs, but then you still put your whole $250k cash in offset acct. Where the f&%k did the other $100k come from but nevermind.

  Assumptions :

  Interest = 5%
  Term of loan = 30 years
  Repayment frequency = Monthly.
  Offset amount = $250k for the life of the loan from Day 1.

  Monthly repayment = $2,159 / month
  Lifetime interest paid = $27,839 over 17 years (Why is it 17 years and not the 30 years you stipulated? Because you have a high repayment amount for essentially a small principal amount of $150k so you pay it fast and the term of the loan is cut by 13 years).

  Calculator used - http://info.westpac.com.au/homeloans/calculatortools/offset-…

  Please note that scenario 2 includes this mystical $100k from nowhere.

  • 

    dcep on 21/06/2017 - 22:54

    My bad. Should be $150k left for offset.

    • 

      tsunamisurfer on 21/06/2017 - 23:01

      +2

      New loan term is 19 years with total interest payable of $93,150.