Finance advice

Mortgage Reduction Tips For High-Income Investors

By Neil Carstairs

One of the most important strategies many high-income property investors use is to correctly set up an offset.

SPONSORED BY Blogger: Neil Carstairs, Director & Senior Lending Specialist, Mortgage Corp 

As you can see, from the examples below, it’s a strategy that can save a mortgage holder $200,000 in the life of a loan without making any extra repayments – just by structuring your loan correctly with a good broker. That’s free money in your pocket. What could you do with $200,000?

There’s no worse feeling than over-paying for something – it’s like pouring money down the drain.

And yet, thousands of Australians waste millions of dollars collectively every day, by overspending on ill-suited mortgage products and paying higher interest rates than they need to.

So just how can you get started on eliminating debts, reducing your mortgage and saving a six-figure sum along the way – without investing extra dollars or making any changes to your lifestyle?

Using an offset account to your advantage on your home loan

If you have a personal mortgage against your home loan and you don’t have an offset account, then you need a better mortgage broker, stat.

Any borrower with any savings at all – even as little as $10,000 – should be leveraging an offset account to their financial benefit.

In essence, an offset account is a savings account attached to your mortgage account, which allows you to reduce your interest charges against your mortgage.

By using a credit card supplied as part of the package and enjoying up to 55 days of interest-free each month, you can save thousands of dollars – all by using other people’s money to help you reduce debt.

Here’s how it works:

Let’s say for this example, Ben Smith, an IT Manager working for a large corporate company, brings home each month $8,500 after tax. Ben has a $500,000 mortgage and $50,000 in his offset account. That $50,000 ‘offsets’ the amount of interest payable on Ben’s loan.

While that money remains in the offset, Ben’s interest obligation is payable on just $450,000.

Then, Ben ups the ante by adding his monthly after-tax income of $8,500 to his offset. He pays for every single living expense and bill throughout the month using his interest-free credit card, then pays the balance in full each month. We call this using the bank’s money for free to help pay off your mortgage.

The end result? Ben only pays mortgage interest on $441,500 – and the savings quickly build up.

Let’s see how much Ben could save a year:

Ben pockets almost $3,000 in cash savings every year, with no extra financial effort required.* There has been no change to Ben’s lifestyle, spending or financial outlay, but thanks to smart money management, he’s able to save thousands of dollars per year.

How to bank $200,000 (or more) using an offset account

The money Ben saves every year can be redeployed into debt repayment, with extraordinary results.

It’s not just that it will allow him to pay off his mortgage/s or other debts sooner; it’s the fact that he will quite literally save six-figures worth of wasted interest and mortgage repayments by doing so.

Even if he doesn’t pay a single extra dollar from his own personal income, other than the savings made from using an offset account, into his loan, the overall benefit is significant. In fact, some mortgage holders could save over $250,000 during the life of their loan.

Here’s how it works:

Assuming Ben pays the credit card balance in full each month at the end of the free interest period and doesn’t have any other debts.

~ Assuming repayments at 5% interest rate on 30-year loan, with an ongoing offset of $58,500. No additional savings or increases in salary are assumed.

How does Ben save such a significant sum?

Ben pays a monthly mortgage of $2,680, including principal and interest. Six years’ worth of saved mortgage repayments equates to the following:

$2,680 x 12 months = $32,160
$32,160 x 6 years = $192,960

By leveraging offset and fast-tracking his mortgage repayments, Ben will be saved from making $192,960 worth of mortgage repayments.

The above figures demonstrate that just by doing the minimum and using an offset account, with no additional savings, it’s possible to save hundreds of thousands of hard-earned dollars!

Now, if Ben were to compound his efforts and add to the offset account over the loan term, the saving will be much greater.

Keep reading

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  ["title"]=>
  string(72) "Mortgages in a tighter lending economy and why Brisbane is a good option"
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Tune in to the latest episode of Property Showcase, the podcast with the inside track on the products and businesses that will help turbocharge your portfolio, maximise returns and make your overall investment experience seamless and stress-free!

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To hear more about these services, make sure to tune in to this episode of Property Showcase!

 Make sure you never miss an episode by subscribing to us now on iTunes!

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Son Pham is the accredited Head of Mortgages at Rethink Financing\/Rethink Investing. He has over 6 years\u2019 experience writing loans, over 12 years in the wealth management industry working for the likes of CBA, AMP and private practice and he is also a licenced financial planner (AFSL 326450). He has multiple investment properties that are cash flow positive which help pay his mortgage on his home and fund his lifestyle.<\/p>\r\n

Son is able to write all types of residential and commercial property loans.<\/p>\r\n

In this episode of Property Showcase, head of mortgages at Rethink investing Son Pham joins host Tim Neary to unpack how an investor should approach getting a mortgage in place with banks tightening down on serviceability.<\/p>\r\n

Hear from\u00a0Son\u00a0about:\u00a0<\/p>\r\n

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  • The pitfalls that he has seen people get into<\/li>\r\n
  • Interest only loans and if that is the way to go<\/li>\r\n
  • How the mortgage division supports the overall business of Rethink Investing<\/li>\r\n<\/ul>","clientImage1":"images\/podcasts\/Son-Pham.jpg","clientUrl1":"https:\/\/rethinkinvesting.com.au\/","clientName2":"OpenCorp","clientDesc2":"

    Whether it\u2019s building a successful property portfolio or investing in one of their Development Funds, Open Corp can help you through every stage of your investment journey. The team has 40 property specialists who collectively have been involved in over $4 billion worth of property transactions and the acquisition of more than 8000 homes and investment properties.<\/p>\r\n

    In this episode of Property Showcase, director of investment services for Open Corp Michael Beresford,\u00a0joins\u00a0editor of Real Estate, Tim Neary to share why he disagrees that the cooling market means that the best times are behind us.<\/p>\r\n

    In this episode, hear from\u00a0Michael\u00a0about:\u00a0<\/p>\r\n

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    • Why Brisbane is a good investment option right now<\/li>\r\n
    • How he wants to help clients take advantage of the current market<\/li>\r\n
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Mortgages in a tighter lending economy and why Brisbane is a good option
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Will Magee has had ambitions to enter into the Australian property market for quite some time, but it has been more than just finances holding him back.  Having been granted permanent residency just two weeks ago, Will is wasting no time and is now in the process of signing papers and finding his first investment property.

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In this episode of the Smart Property Investment Show, Will joins host Phil Tarrant to share why he is purchasing his first property in partnership with his brother, discuss the complications that can arise from such a strategy, and unpack the ongoing plan for building a joint property portfolio with his brother.

Will will also share how they approached saving for their first property, why he is taking out the mortgage in his name exclusively, and share their savings plan for the year ahead.

If you like this episode, show your support by rating us or leaving a review on iTunes (The Smart Property Investment Show) and by following Smart Property Investment on social media: FacebookTwitter and LinkedIn.

If you have any questions about what you heard today, any topics of interest you have in mind, or if you’d like to lend your voice to the show, email [email protected] for more insights!

RELATED AREAS OF INTEREST:

From property in Australia to a ski lodge in Japan
Mortgage Trusts, an alternative first step for property investors
Should a real estate title be in one person’s name only?

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A property investment plan years in the making
object(stdClass)#1205 (52) {
  ["id"]=>
  string(5) "18287"
  ["title"]=>
  string(75) "Regional Victoria showing up Melbourne in price performance, new data finds"
  ["alias"]=>
  string(74) "regional-victoria-showing-up-melbourne-in-price-performance-new-data-finds"
  ["introtext"]=>
  string(139) "

Median house prices in regional Victoria outperformed that of Melbourne in the June quarter, the latest REIV figures reveal. 

" ["fulltext"]=> string(2323) "

Median house prices in the regions rose 4.0 per cent to $419,500 but in Melbourne they dipped by 0.6 of a percentage point to $840,000.

The result in Melbourne was due to a 0.8 of a percentage point fall in prices achieved at auction; this was despite a lift of 2.3 per cent in private sales.

Inner Melbourne suffered due to auction prices, where median prices fell by 4.9 per cent to $1,459,000 but it was middle Melbourne that was hardest hit, with a 5.4 per cent drop to $974,500.

Outer Melbourne had a good quarter with the median rising by 0.5 of a percentage point to $681,000.

Apartment prices in regional Victoria grew by 3.7 per cent to $304,500 while the metro media was up by 0.5 of a percentage point to $604,000.

REIV President Richard Simpson said that despite fewer sales, many sectors of the market were performing well.

“2017 was a bumper year and while the trendline has flattened, despite the fall in median house prices in the June quarter, median prices are still up this calendar year for both houses and units, in Melbourne and in the regions,” Mr Simpson said. 

In particular there was been strong growth in regional centres which is probably due to the first-home buyers’ concessions said Mr Simpsons.

“The first-home buyers’ concession has been a boon for regional areas. A new entrant to the property market buying a house at the regional median will pay no stamp duty, while a first home buyer of an apartment in Melbourne at the median price would pay stamp duty of nearly $25,000,” he said.

Mr Simpson said that more prospective buyers are looking towards regional Victoria which is also having an effect in Melbourne.

“Melbourne’s outer perimeter continues to grow. Small increases in the June quarter mean that the median prices for both houses and units have risen over 10.5 per cent from a year ago.

Mr Simpson said moving forward that vendors need more realistic expectations as the highs of 2017 are now over.

“Negative chatter about the future of the sector coupled with stronger lending controls by financial institutions has created some uncertainty and vendors need to be realistic with their price expectations,” Mr Simpson said.

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Regional Victoria showing up Melbourne in price performance, new data finds

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