The main financial ghost which terrifies the borrower is the dreadful monthly loan repayment. The typical questions and the responses are:
The rule of thumb is that your home loan should constitute less than 30% of the income. At 40% the borrower is already under the financial stress. However, current property prices force many to push the boundaries of the economic logic. The reason is obvious - we need our own place to live in.
Offset account is a great way to deposit more money into your loan. At the same time the system allows you to withdraw the money if you need it.
This means that your money actually works against the loan as long as the funds are in the offset account. This way the interest becomes smaller.
Offset account is a safe way to reduce future loan repayments dramatically. It is by far a better option for most borrowers than the line of credit loans. Most banks provide offset account. Insist to have it linked to your EFTPOS.
This is a great feature if you currently do not have funds to pay interest plus the principle. However, the repayments under this system do not reduce the loan. Therefore, at some stage you need to come up with the funds to also pay the principle. Generally, interest only home loans are set for 10 years.
You do not need to be a mathematician to use the home loan repayment formula. Most banks have free of charge mortgage calculators in their websites. Home loan repayment formula is a simple feature to use. You need to type:
Most loan calculators provide comparison rates, graphs of the loan reduction etc.
For those who love to play accountants, Excel has the facility to calculate the loan repayments. The function is called PMT().
The arguments are as follows: PMT(Interest Rate, Number of Periods, Principal)
The benefit of using stand alone applications for is to get the real time data. Using your home loan repayment formula calculations allow you to argue with the bank if figures do not match. Also, loan calculators require internet connection while Excel can be used at any time.