An offset account is a transaction account linked to your mortgage/loan account. You should consider using this account for all salary/income/rent to flow though this account. The more money you have in this offset account the more you save on interest since your own funds offsets the mortgage/loan account. Call Us to find out more.
Question & Answer
What is an Savings Account?
A savings account is also a transaction account however not linked to your mortgage/loan account. Traditionally banks will offer you a low interest on your savings balance which will become taxable, meaning you have to pay Tax on it. Ideally if you have a mortgage, the benefits of having an offset account instead of a savings account is far greater. Call Us to find out more.
What is a “good loan”?
In our opinion an investment property loans are “good loan” – why? Because it helps reduce your taxable income thus pay less tax. The interest on these loans are generally tax deductable (please confirm with your accountant) reducing your net declared income from your investment properties. This is also referred to as negative gearing. Call Us to find out more.
What is a “bad loan”?
In our opinion owner-occupied home loans are “bad loan” – why? Because they are not tax deductable and needs to be paid from your after-tax income. As such we always recommend and strategize with our customers to find ways to pay off their home loans as soon as possible. Call Us to find out more.
What is a “Equity”?
This is an interesting one. Many of our clients get this wrong. Equity on your property is not the difference between property value less the loan amount. Equity is determined by what the lender’s LVR policy. This means if your house is worth $1,000,000 and current loan on it is $500,000 with lender’s policy of up to 80% LVR, then the Equity on your property is $300,000. (Calc -$1,000,00 @ 80% LVR = $800,000 – $500,000 = $300,000). Your Equity may differ from lender to lender depending on their LVR policy. Call Us to find out more.
What is a “LMI”?
Lender’s Mortgage Insurance (LMI). This insurance protects the lender if customers default on their loan. Typically bank/lenders will charge LMI if the LVR is over 80%, i.e. if customers don’t have at least 20% deposit towards the loan. We personally are not in favour of customers paying LMI however in some cases it’s unavoidable. Call Us to find out more.
What is a “LVR”?
Loan to Value Ratio (LVR). If you purchase a property for $500,000 and you only have 10% deposit or $50,000, you will need a loan of $450,000 or 90% LVR. Call Us to find out more.