House - Borrow Less Vs Borrow More with Offset

Lalchalch on 10/01/2023 - 23:24
Last edited 10/01/2023 - 23:28

My wife and I are looking at purchasing a house for the first time, owner occupied, forever home.

Just after some opinions on the below.

Currently looking at houses around $600,000, with the focus being on affordable repayments.

Things to consider, we are lucky to have a family guarantor for 20%, so deposit won't be needed and $50,000 is half of our savings

Should we buy a $600,000 house, borrowing $600,000 and then leave $100,000 in an offset
or
Should we buy a $600,000 house, borrowing $550,000 and pay $50,000 down on the loan (leaving $50,000 for savings in an offset)
or
Be scared, buy a smaller $550,000 house, borrowing $550,000 and then leave $100,000 in an offset

Interested to see if anyone thinks of something else to consider, please be gentle, this is my first post :D

Poll Options

  • 43
    Buy 600k, Borrow 600k, leave 100k in offset/savings
  • 4
    Buy 600k, Borrow 550k, pay $50k, leave $50k in offset/savings
  • 9
    Be scared, buy smaller and be sad
Financial Home Loan

Comments

  • [Deactivated] on 10/01/2023 - 23:48
    +8

    naaah you have to post it from your first account, I'm not answering until then

    • Neoika on 11/01/2023 - 00:01
      +1

      Yes, and if not, do not disable acc after find the answer.

      • [Deactivated] on 11/01/2023 - 01:05
        +1

        HAAHAHAHAHHAAH manz not smooth as he think he is

        • alchalch on 11/01/2023 - 20:03

          haha, you guys had me scared, as if you found another account or something, I went to reset password, this is the only one I've got :D

  • Porker on 11/01/2023 - 00:01

    Your option 1 and 2 would for the most part be the same out of pocket expenses or outgoings.

    The difference is with option 1, if or when required, you could access $100,000 as opposed to $50,000.

    However, more option 1 has more debt against your names so likely to affect credit rating etc.

    • avoidfullprice on 11/01/2023 - 00:19
      +4

      They will have different repayment amount.

      Option 1 will force higher repayment, so OP will pay off mortgage faster

      Option 1 will reduce OP borrowing power outside mortgage.

      Why do you think higher loan will impact credit rating more ??

      • Porker on 11/01/2023 - 00:31
        +2

        Yes, you're correct.

        Ignore my reply and use of term 'credit rating' - should be 'ability to borrow money' or use money you don't have.

        • alchalch on 11/01/2023 - 20:32

          Would be the dream if we could pay it off much faster, which I feel will happen, could get a 30 down to 20 at least with offset ideas.

          • FezMonkey on 12/01/2023 - 15:30

            @alchalch: The other difference between options 1 and 2 is will you be tempted to spend the money since you have a large sum sitting there? If so then option 2 is your friend

  • dcep on 11/01/2023 - 00:13
    +5

    purchasing a house for the first time, owner occupied, forever home.

    don't say that too early , leave all possibilities open ended

    • alchalch on 11/01/2023 - 20:04

      40 years old, going to be too late for that 2nd house or upgrade, not having kids so a 2 bedroom is fine! :D

  • payless69 on 11/01/2023 - 03:59
    +1

    unknown guarantor, new account, is this a troll?

    • alchalch on 11/01/2023 - 20:05

      Not a troll post, you wouldn't know my guarantor….unless you do?

      • payless69 on 12/01/2023 - 02:52

        I leaned that at primary school: NEVER be a guarantor!
        Then did it for a small amount and lost it all.
        Comrade 'banese will obey Hunter Biden and give his money to Xi……..

  • garetz on 11/01/2023 - 04:35
    +5

    Depends if you need to pay LMI or not, i would do whatever is necessary not to pay lmi.

    • alchalch on 11/01/2023 - 20:06

      100% the biggest reason my guarantor is helping me out, no deposit, no lmi.

      • garetz on 11/01/2023 - 21:51

        In that case the 1st option is the best option.

  • JafferMoney on 11/01/2023 - 08:54

    Borrow more and leave funds in offset account.

    Also, don't bet on it being your 'forever home' especially as it's your first home…for most it's very unlikely that their first home purchase ends up being their forever home.

    • alchalch on 11/01/2023 - 20:30
      +1

      40 years old, going to be too late for that 2nd house or upgrade, not having kids so a 2 or lucky 3 bedroom is fine

      The offset idea is gaining much traction and it made sense to me

  • Duckie2hh on 11/01/2023 - 09:07

    You need to add approximately 5% to cover stamp duty and other ancillary costs during the purchase.

    • Some Human on 11/01/2023 - 09:51

      I assumed they were stamp duty exempt being first home buyers in vic. Unless something’s changed?

      • chickens on 11/01/2023 - 10:40

        nothing's changed - first home buyers are exempt from stamp duty for 600k and below purchases

        • alchalch on 11/01/2023 - 20:32

          very lucky to be a Victorian atm, Vic stamp duty 550k is $0 with other fees totaling $1550, 600k is $0 stamp and $1667 for others, 650k it jumps up to $11357 stamp and total with other fees $13141

          It's still good, can't complain too much

  • Leanne59 on 11/01/2023 - 09:11
    +1

    With the stamp duty on the Transfer being over $30k for a $600k property and then the other legal costs in purchasing etc it doesn't leave much change out of $40-$50K. Is the family guarantee going to cover every out of pocket expense so that you can play around with your $100K? I've seen too many family guarantees go wrong over the years to think they are a good idea for the guarantor/s.

    • alchalch on 11/01/2023 - 20:09

      Thanks for the thoughts on the extra costs, that will certainly eat a chunk of the intended offset funds, luckily in Vic stamp duty 550k is $0 with other fees totaling $1550, 600k is $0 stamp and $1667 for others, 650k it jumps up to $11357 stamp and total with other fees $13141

      It's still good, can't complain too much

  • ForkSnorter on 11/01/2023 - 09:24
    +1

    I wouldn't bother with the family guarantor. Don't put your family under any obligations. Being independent from a young age makes you feel like your own person, which can help you later in life. I didn't receive one cent from my family, finished 4 degrees and paid off my mortgage already.

    • Ghost47 on 11/01/2023 - 14:22
      +1

      4 degrees? Which ones? Not sure why you were downvoted.

      • alchalch on 11/01/2023 - 20:35

        I'm 40, kinda getting late in life, the family member is good for money, just a family gesture, if we managed to have issues with the mortgate, they would just purchase the property and add it to their portfolio

  • cauilfield on 11/01/2023 - 09:28
    +1

    if it does not cost more, grab bigger loan and offset as much as possible - this will give you access to cheap credit facility as needed. Always refer to the PDS and T&Cs to ensure you don't get burnt.

    • alchalch on 11/01/2023 - 20:34

      Thanks, we're considering using a mortgage broker just to make sure things go okay

  • Ghost47 on 11/01/2023 - 14:21
    +1

    Borrow less as rates are uncertain.

    • alchalch on 11/01/2023 - 20:34

      My partners biggest fear, I'm trying to keep in mind that rates could hit 7.5-8%
      I surely would hope not though

      At least, with the offset account, we would have money there in case it does increase

      • Ghost47 on 11/01/2023 - 20:37

        I think news today mentioned that CPI increased in November, and I'm gonna go out on a limb and assume that December was a busy month for retail. Therefore more rate rises on the way.

  • primal89 on 13/01/2023 - 15:32

    "Things to consider, we are lucky to have a family guarantor for 20%, so deposit won't be needed and $50,000 is half of our savings"

    Ahh who is paying the loan on the 20% deposit that is pulled out… I think you need more research on this I didn't go down the guarantor route as it increased repayments.

    Budget for 7-9% rates max and you will be fine long term.

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