- April 24, 2024
- Posted by: legaleseblogger
- Category: Related News
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## Situation Overview
The individual currently owes $340,000 on their mortgage, but has $140,000 in offset. This means they are essentially paying interest on $200,000. They are now considering speaking to the bank to pay $100,000 off the capital and are unsure how this will impact their monthly payments.
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AI Legalese Decoder can assist in this situation by analyzing the individual’s mortgage agreement and providing clear, easy-to-understand insights into how paying off $100,000 of the capital will affect their monthly payments. This tool can help the individual make an informed decision based on their specific financial circumstances.
## Additional Considerations
The individual mentions they have stocks and other investments but are not interested in investing the cash elsewhere, as it is currently working in the offset with current rates. They express a desire to own their house outright for personal reasons. AI Legalese Decoder can also provide guidance on the implications of paying off a portion of the mortgage on their overall financial goals and strategies for optimizing their investments while achieving their homeownership objectives.
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So your options are as follows
1. Leave it as is. Your repayments will stay the same but you’ll be paying it off faster as the offset will reduce the interest charges each month, you’ll also have full access to the $140k at any point in time
2. Do* a principal reduction, which means the $100k will pay off the loan directly therefore reducing your monthly repayment amount but you won’t have access to that’s $100k anymore unless you refinance
If you ask the bank for a 100k limit reduction this will lower your total repayments, interest component stays the same
Paying more on the capital won’t reduce your repayments.
The only way to do this is by speaking to your bank who may reissue the mortgage for a longer term. They are the only ones who can tell you how much less
Paying off won’t necessarily reduce monthly payments
You need to recast or refinance your loan
I prefer you put it on the offset account. Take this into consideration
1. That’s a liquid cash for emergency situations. It’s easy to take the money out from your offset account rather than taking equity out from the bank.
2. Putting it on the offset account is the same as paying it straight to the bank. Your repayments will remain the same, but the interest towards your principal will be lower. (From my own experience. I have enough money on my offset to close off my loan, but I just put it on my offset, and I get 0 interest on every repayment.)
3. When economy is doing better, better invest the money into stock that will give you more return than putting it on the offset account. Currently stock market is getting better. I got 10% return in the last 6 months, much better than putting it on offset account with 6.5% interest
My experience with CBA.
If you don’t do anything, your normal payments will eat away the principle much faster as there’s less interest charged each month, thanks to your offset.
You could achieve the same faster by shifting shifting some $$$ to the loan account.
The bank will eventually send you a notice offering to reduce payments to match the loan term.
I actually increased ours a little to pay off the loan earlier – after a few months this now does show some $$$ as available for redraw should we need to.
You can split the loan into a second one of $100k and pay it off.
Plug all your numbers into here (including your current interest rate which you didn’t mention in your post) to get your answer: https://moneysmart.gov.au/home-loans/mortgage-calculator
You could look all this up online just look up mortgage calculator
If the aim is to pay off the house, why recast the payment. Makes no sense