> You could also mortgage the property after you have bought it.
I trap I see as a banker is people think, "ill draw on the equity when I need the cash" not realising that to draw on their equity they need to go through a full credit assessment and when you need cash, often that's when your financial situation isnt great.
Happens a lot with retirees who close facilities that they don't think they need, suddenly realise they want to do a renovation but find out that the bank doesn't want to give a 30 year mortgage to a 70 year old and their super drawings don't cover a shorter term.
I am a lending manager myself, a reverse mortgage would suit this client, home renovations not so important, but sometimes a 70 year old needs to purchase a new car.
Why not debt recycle? 20% deposit, redraw account for the remaining 80%... best of all worlds, low interest rate, tax deductible interest, get a home, get investment portfolio up and running
You wouldn't pay it off, you deposit 79.99% into the redraw account* (check with your bank at what point theyll auto close the redraw i.e. (when the balance is 1c, or $1, or $0.00) you then take it out again and send it to your brokerage account.
* I think its common for banks to allow a number of splits up to a specified amount, i.e. no more than 5 splits and each must be less than 100k - but im not sure about that, best to check with broker/lender
Yes, right next to the annual loan fee clause that makes the bank money for zero risk. Banks can do it, but it's rare because keeping the customer means they are more likely to pick you for other products.
I just checked CBA and it's 9% i had an unsecured personal loan from ING less than that, what a joke.
So i guess it's good to have a mortgage you can use for debt cycling
Is it because the return from stocks of 10% (plus any capital gains from the house) is greater than the cost to buy it, which is the mortgage interest of 5%?
If you pay cash all you get is capital gains. If you borrow 80%, you still get the capital gains and if you debt recycle the remaining into shares, you get the capital gains from them too plus the interest is tax deductible.
It's known as the problem of knowledge from induction. One example to highlight this is a turkey who observes how humans treat it. It gets increasingly more confident that humans have its best interest at heart as each week passes, until the Wednesday prior to Thanksgiving, when it has a harsh readjustmen to reality.
Nassim Taleb covers this in detail in a book called the Black Swan, but there are many situations where relying on past knowledge can leave you worse off and exposed to the event that hasn't happened yet.
I'm not sure a 10+ year old paper is really the best citation for your claims in a field that moves pretty fast. And especially in a field that relies on computer modelling that gets updated as quickly as computing power advances.
I fear you may be falling into the "a little bit of knowledge is a dangerous thing" trap. Knowing statistics =! knowing climate science.
Is there uncertainty? Yes.
Does the IPCC talk about that in great detail in its reports? Yes.
Are we going to mitigate some effects of climate change? Probably.
Are we going to mitigate all of them? Well, no. Considering we're already seeing those effects now.
> This'll get down votes, but Im confused by climate science.
That’s the only true thing you said. lol
You ARE very confused about climate science. I’d suggest not commenting in it until you understand it better.
Not even close. There's a big lag between emissions and climate response. The worst of our emissions over the last 10-20 years, we've not even seen the effects of yet.
I think there's also an underlying assumption in your response that climate change is linear - it'll gradually get worse, but if we fix it in time it'll gradually get better. This might seem intuitive but many things in science defy intuition. There is no reason to assume a linear response. There could be a runaway positive feedback loop hiding in plain sight that we trip in the next decade, causing an irreversible and drastic change to the climate that could eventually cause the starvation of billions.
We can't be 100% sure about anything because there are so many variables, although we do know more and more over time, and the new knowledge that were do find keeps pointing at more adverse risks. It's down to risk - the "no need to panic" stance could cost us everything. We know that pumping billions of tonnes of CO2 into our atmosphere is overall not a good thing. To continue this behaviour is an image risk with extremely high stakes.
The last point - that we're correcting it with time to spare - is a very odd stance to take. Our global emissions are higher than ever, see https://ourworldindata.org/grapher/annual-co-emissions-by-region. This claim is demonstrably and utterly false.
My comment was only intended backing what markets growing year on year can happen forever. They can’t on this planet with finite resources and the likelihood that climate crisis will throw a spanner in financial markets.
Also not panicking. I used “likely” deliberately as there is some uncertainty as to when it will affect you and me directly. For those who have been flooded multiple times, houses burnt in recent years, insurance premiums skyrocketing or no frozen chips at your supermarket it already has.
I think the disparity between what you've read and interpretred and what current climate scientists are discussing is the very reason why Climate Science is its own field.
The best part about scientific society is that we as individuals dont have to know everything. I don't need a computer science degree to operate my computer because someone that DOES have one built it for me.
I dont need need to run computer models to predict climate change because there are specialised climate scientsists that do it for me.
We just have to trust that the experts in their field are doing it right and ehen every climate scientsist is saying the same thing you can be confident that what they are sayibg is right.
If climate scientists were split on the issue, youd be perfectly justified with your skeptisism.
Like cancer treatment, every oncologist likes to go about it a different way, they use different treatments because there isnt one solution, there isnt a consensus on how to treat cancer.
We have consensus on the climate. The only question thay remains is around exactly how bad it is going to get.
In terms of return on investment? No, several studies have shown that usually investing in stocks what you would have paid in mortgage has historically yielded a better return
>you'd have made a better return by putting down 20%, borrowing 80%, and putting the rest of your cash into stocks
Probably only true if you are a robot. We, as humans are emotional. The only people who would actually not tinker with and touch the funds over the long term (to effectively capture this better return you speak of) are those that don't realise they have money invested and those who are dead.
We also make better decisions,( including financial ones) when we are in a stronger position, that of which isn't being subject to interest rate changes and a 30 year obligation to make repayments.
Will it always be a Ppor? You can guarantee that nothing in your circumstances will change?
Myself, I've bought 3 forever homes already, but things change.
Second - getting a loan and then completely offsetting it gives you flexibility and costs you something like 300 per year - it's a great deal.
Next you can set up loan splits, put money into the loan and the redraw and invest for some debt recycling tax benefits.
Third, if you don't want to debt recycle then lets say the market crashed 50% and you want to buy shares, the money is available to you to do that.
In the end a loan might not be right for you, but there are lots of reasons why it could be useful to you.
I’m net positive with an offset and investments however I pay mortgage interest on about 100k. Things are changing with interest rates and I’m lowering the amount I pay interest on. Has been a good way to borrow against myself and invest
^ all fantastic advice. Another fantastic alternative to buying outright is that whatever you pay on rent now just becomes a new savings deposit each week. If you don’t have enough money for something in the future you have an asset to borrow against and you are t paying for the roof over your head weekly, you’ll crush it. That’s my take
100% agree with all of this and just to add one additional comment. Banks like Suncorp have deals where they waive the annual fee for the life of the loan so that $300 annual fee you mentioned becomes nothing.
In addition you get $3000 cashback and a platinum credit card which you can link to qantas frequent flyers if you’re a points chaser.
Basically means the bank would be paying OP to have a feee line of credit.
This. A 20% deposit with the rest in offset is the more flexible option. It keeps your cash liquid so you could react to changing economic times more strategically if you were inclined.
If you don’t need to build other sources of wealth, you don’t need to complicate things. Buying outright is the more straightforward approach.
People love to think optimistically in these scenarios, most people will tell you a mortgage is good because they think if they were in your shoes they would be able to optimize the returns via stocks or whatever else (which is probably going to be true if you are diligent).
People can be stupid and impulsive, for example once I started making a lot of money you know what I did? I became a gacha game addict and started spending $30k a year in videogames a year. You bet I wouldn't be doing that if I had locked all my money away in a house
Only you can know what is good for you, my brother faced the same problem, he came into a lot of money and couldn't decide whether or not to buy a house outright or invest it in other ways and because he has had gambling problems and drug issues in the past he decided he couldn't trust himself with access to large amounts and just bought a house outright, he has no regrets and is sleeping peacefully while we're all frothing at the mouth over interest rate rises
I'm a big fan of just keeping it simple and paying off the mortgage/not having one in first place. No one ever regretted being debt free..
However. Keeping funds in mortgage offset facility can give you: liquidity in an emergency, if you haven't got this covered. Liquidity if things change, ie. You want to buy a new place and want to have a deposit ready for obtaining finance. Also if you decide to rent it out you can negatively gear the interest portion.
You could run a strategy called debt recycling. Say you buy a home outright, you'd have 100% equity in it. You could then take out a loan, pay it down and then re-draw a separate loan for investment purposes.
Pros: if you're on a high income, you can 'negatively gear' into growth assets, such as another property or shares, which would give you a growing asset and tax deductibility on the interest from that loan.
Cons: you would have to get a net return on your investment, greater than your interest and expenses, in order for it to be worthwhile. If you had net expenses of 6%, you'd need an investment that returns greater than 6% for it to be worthwhile.
While there’s nothing wrong with being debt free there’s a strategy where you get a loan against that property to then invest with an derive and income and the interest on that debt becomes tax free.
Your mortgage is some of the cheapest debt you can ever get so if you’re going to borrow against something it should be your home.
It all gets priced into expected future returns of the asset you’re buying.
So I wouldn’t do so if the P/E of what I’m buying is only going to be low single digits like back in 2021.
I work in an industry with a lot of Private Equity investment and I’m looking to buy, where previously a lot of these were offering a 9% estimated return, but if I assume a 6% interest rate I’m not going to take on that much risk in order to eek out that small a difference.
And I’m not the only one apparently as I just saw one a few days ago at a bit over 14%.
(Note these aren’t truely passive investments but you get my point and the same principle applies to stocks)
Haters will hate...
Congrats, your being debt/mortgage free (the ideal outcome) along with some form of steady income..
The kicker is 'you' have the option to remortgage (if one wanted to)
In my eyes you 'hold the keys/power' not a bank charging interest on a loan amount, nor is there a caveat on your house/asset = can be considered (for some) your long term savings etc
No school me; how did you become mortgage free?
It's nothing to do with hate. It's about maximising the potential of the dollar. The people who recommended mortgage to OP doesn't hate, infact just the opposite.
Interesting concept, but educate me & my small brain.. how would a remortgage/debt benefit OP? My simple mind is focused not owing, not being charged interest, not risking the loss of the asset
If you have a loan, you can use the money in your offset for debt recycling which makes the interest on the loan partially tax deductible.
Historically you've always been better having a "good debt" of a mortgage (back when we had low interest rates of like 2%) and then putting all your money in the stock market which on average yields 7%, so you end up way ahead in the long term.
Finally, if your loan is fully offset you're only paying a tiny amount ($300-400) in mortgage costs to keep the loan open, which gives you basically a free line of credit if you ever want to buy a Bugatti.
>you can use the money in your offset for debt recycling
>if your loan is fully offset you're only paying a tiny amount ($300-400) in mortgage costs to keep the loan open,
You can only do one or the other though? A lot of people talking about the benefits of leverage/debt recycling AND the benefits of the fully offset loan reducing the interest
>And if you don't have a mortgage, you get NEITHER benefit.
You get the benefit equivalent to the full offset option. You don't have any repayments or debt.
Most people would rarely even consider your option, so they have convinced themselves that being saddled with huge amounts of debt is a prudent financial move. Ignore them.
Tbh if you don’t think you need a loan then don’t get one. It’s always good to not be in debt. People just see it as a money making opportunity, if that doesn’t matter to you then ya. That’s my opinion anyway.
At 6% interest rates their argument falls apart. The risk free return of paying in cash significantly out ways that of the “invest the rest in stocks” line of thinking that others are proposing.
Exactly.
It makes little sense to be paying interest on a debt if you don’t have to.
The only “financial experts” I’ve ever seen advocate for taking on unnecessary debt are the types who are paid to talk about wealth generation, and when you look a bit deeper you find out they’ve been bankrupted 4 times.
This is just BS. Debt recycling is absolutely an option.
You don't have to do any of that even for it to make sense. Just leave it in the offset account in the worst case scenario. The current situation with rates and inflation is not sustainable, it will change soon.
Why take some risk when no risk is an option?
Every loan you take has counter party risk, every bank deposit has counter party risk. Multiple US banks are collapsing this week, deposits above $250K wiped out. This CAN happen to you, and to Australian banks. It is not a certainty that your offset account is in fact safe.
Outright ownership of the home has no default risk. It is your asset.
Total cost of $500K mortgage at 6% over 30 years: ~$1.1 million
So you get a (ignoring inflation) 55% immediate discount by buying in cash.
I would take that deal in the supermarket so why shouldn’t I take it with my shelter?
Pile your mortgage payments you’re now not making into stocks ($400K mortgage @6% is 30k per year for 30 years) and at 8% market returns gets you to $3.3 million. No interest paid in the process. No leverage, no debt-based risk, pretty epic return.
Obviously the return on debt recycling and good tax structuring would be higher, not arguing that point. My point is, is the above not enough? Would it not have better ability to sleep at night returns?
When was the last time an Australian bank closed down and people lost their deposits?
As to the stocks, you are not making any sense. There is no additional cost of getting a mortgage if you have full access to cash to buy anyway.
Instead of buying the property outright, you put that in the offset. There is no additional 'mortgage payments you are now not making'. It's exactly the same scenario as buying outright, as your repayments go from the offset to the loan at zero interest.
You buy your stocks or whatever investment vehicle you want to put in using the 'imaginary mortgage payments' you are making for whatever returns you get.
This is basic. This gives you access to your money instead of giving it to the bank.
Debt recycling benefits is in top of this if you wish to take the risk.
Volt bank collapsed last year.
Banks fail, read a history book. Every country, every civilisation. It happens. My point is risk management. Know and evaluate your risks.
People using offset accounts don’t own their house, the bank does.
It’s a personal, subjective opinion on evaluating the risk to return, if some insane event happens and my bank goes under how much can I lose, compared to how much do I stand to benefit from the offset facility?
Not everyone values higher returns above peace of mind.
You are technically making repayments if its coming from the offset…
First, Never heard of this bank but quick Google search says Volt bank had 44 accounts with 114k in deposits (in all) which were all returned. So nobody lost thier money.
Second, if you have 100% to buy why would you select popup banks and not tier one?
Third, this is a finance sub, higher returns is kind of the point of it.
If you are looking for mental peace advice, r/Buddhism might suit better.
Still, a bank failed in Australia last year.
Why involve middlemen and not do a direct transaction with the seller?
I’m providing alternatives to your rigid line of thinking, because a forum about finance should explore and examine the entire nature of the topic and not the current state of it.
>Debt recycling is absolutely an option.
You only debt recycle if you've already made the decision to invest and are aware of those risks. If you're intention is to be debt free, then it's not the option.
Having a loan against your home/asset gives you flexibility and liquidity. Nobody really knows what the future markets are going to look like but OP has an option to tap into the value of the property if he ever wanted to. If OP doesn't do anything with those funds, who really cares, they could completely offset the loan amount and pay zero interest on it and just pay the small amount in servicing fees.
One thing that people forget, is that everyone's situation changes, wife may stop working to have children or you start a business, then the banks don't really want anything to do with you. Having that line of credit open when you can, could be a godsend.
The funds don't necessarily need to be for an investment, it could be used as a line of credit for renovations or a new car.
Those reasons make it a valuable option for me.
Fair, I don’t think having access to debt is as necessary as everyone makes it out to be though.
Once you have no mortgage you rebuild cash savings insanely quickly. Assuming you don’t go all keeping up with the Jones’, you should be additionally saving the equivalent of your mortgage payments every month.
You literally don’t need more loans after a couple of years, as you can’t help but have savings.
Those savings then pay you interest (shocking I know haha)
So that $40K line of credit at 6% is 10% more expensive than savings that pay you 4% interest.
If interest rates stay around here for 5 years I guarantee the culture around debt will change drastically.
The point around what the interest rates is or how high it is, isn't really relevant though. Home loan rates will always be the cheapest line of credit if you ever needed it. My point is that you never know what life will throw at you and it's valuable to have that liquidity available to you if you ever need it.
The cost of having that line of credit available for the next 30 years is negligible and in my opinion a valuable safety net.
I’ll concede the access to liquidity is useful, but I’ll add that higher interest rates should have encouraged savings behaviour and you would given some time in such an environment have accrued your own liquidity. What the interest rate is, should change where you pull that liquidity from.
Another commenter made the point from a bankers perspective of having seen 70 year old retirees with closed mortgages unable to access credit facilities to do renovations, simultaneously saying they aren’t credit worthy but if they had the line of credit pre-existing they would be able to use it.
Banks (and credit facilities) should be treated in an adversarial way, because that’s how they view you, you’re either a threat or a cash cow.
Even if i had 20 mill in the bank id get a mortgage. Put my minimum deposit down. Completely offset the loan so it is interest free. Now you have an assett that's appreciating that you only tied up 20% of the value
Your money is leveraged rather than tied up. You only have to pay the mortgage fees. The house will slowly be paid off by the monthly repayments over 10-15 years (much faster than 30 since you are fully offset from day dot).
Debt is great, allows you to buy big assets without having to tie up all your cash.
Why is having cash a good thing? You need it to pay stamp duties to buy more assets.
Park the excess cash in offset accounts to reduce debt quicker and then borrow against your other assets rsther than using cash.
Then as others said in here: debt cycling and div 7 loans and stuff allow you to offset even more and make even your ppor tax efficient..
>Even if i had 20 mill in the bank id get a mortgage. Put my minimum deposit down. Completely offset the loan so it is interest free.
If I had 20mil, and buying a 1-2mil PPOR, I'd probably just pay cash - my time would be worth too much to waste it mucking around with banks, credit assessments and loan documentation.
>Now you have an asset that's appreciating that you only tied up 20% of the value
If you're fully offsetting the loan, then those funds would be effectively tied up if they are to do the job of offsetting.
>Your money is leveraged rather than tied up
How is it being leveraged if it's being used to offset the loan?
>The house will slowly be paid off by the monthly repayments over 10-15 years (much faster than 30 since you are fully offset from day dot).
>Debt is great, allows you to buy big assets
as you intend to keep the loan fully offset to achieve this 10-15 year pay off instead of 30 yrs,, then you aren't utilising the debt/leverage? You might as well just pay it off
We had a situation where we could afford to buy a nice house outright or do investment strategies like people are suggesting. Stress of strategies and all we went with no mortgage, couldn't be happier
Buying outright is going to put you in a fantastic low cost of living situation. It’s up to you to do the maths now on how long that difference in money would take for you to save with less financial obligation.
Is it worth paying outright and having less obligations and more ability to use your money for other things day to day? Or could you do a lot with that money now through other investments making it worthwhile to carry debt?
Buy it outright, install solar, buy an EV, plant your own fruit and vegetables and live like many Australians do. Oh yeah, for cash flow, buy at least 5 IPs, so you and your kin never need to work again. Also buys you membership into the NIMBY movement.
Thinking about it .. I'd probably split that cash into three or four chunks, put one in the stock market, and use the other three as deposits on a PPOR and two IPs. Or something like that. It's all a theoretical exercise anyway
Here's the reason: why pay for a house with your money when you can pay using the bank's money, interest free? Most people who take a mortgage out keep the money they have against the loan in an offset account. You pay the principal back slowly, at zero interest if you offset it at 100%. You now have more financial freedom in case of emergencies. The net cashflow on both options is the same, except the option you took means you have no cash and no debt, and option 2 is you have cash but also the same liability.
Firstly - I highly recommend you find a financial planner to discuss your situation and plan for the future. Not just your mortgage.
Secondly (general advice) this primary reason to go with a mortgage, potentially with an offset account you’ll retain access to your liquid cash whilst offsetting 100% of the interest of the home loan. Meaning you’ll still siting on an asset and your cash.
This also frees that cash for alternative investments that could see a return greater than the appreciation of a property or even the interest on the loan. In short, if invested correctly the earnings could ultimately pay your mortgage repayment and then some.
Again, seek advice from a financial planner and make your money work for you.
Possibly dropped on their heads as children, but likely they just want you to be just like them/projecting.
Remember debt is deductible based on what the funds were used for - so if you use debt to buy your PPOR it’s not deductible.
It’s better to just buy the place outright if you can afford it - you can always take an equity loan for investment purposes later and the interest will be deductible.
People are basically telling you NOT to skip the step to wealth that they all struggle with and takes a decade or more of debt recycling to achieve.
>borrowing and holding shares.
This is a separate issue to taking out a mortgage for or buying a house outright?
>you can just fill the offset with cash and then still have shares aswell
You can't fully offset the mortgage whilst having shares though, that's why it's leveraging and adding risk.
>Its free money
Nah, nothing is free.
>Any healthy business has debt
Plenty of healthy debt free businesses too.
>In terms of tax reasons: If you buy a PPOR with a loan, you can do something called debt recycling.
You don't do debt recycling because of tax reasons though, you do it because you've already made the decision to invest and understand the risks involved.
I don't disagree. If you're an astute investor it could be significantly more beneficial to throw the lions share elsewhere. If not I can't see it being bad?
It's the whole make money work for you thing.
Debts are tax deductible if they're being used for investments.
Though you could just take the safe route and use your surplus income instead.
It can help with credit rating/history - if you manage it you can also generate a better return on your own money than the mortgage interest rate is. In rising rate environment and a market prone to shocks, I don't think that is the case right now.
Most people in your situation would take a 20/80 loan and fully offset the 80. An offset account is 250-300/year and it means you can access the cash at any point should you need. You just make payments from the offset account directly against the capital each month and can build a credit history while having a large safety net.
If buying your house outright will still leave a nice healthy emergency fund that you will continue to grow (because you don’t have to pay a mortgage!!) then I really don’t see the issue.
Houses don’t really go down in value over the long term (name one suburb in Australia where a house was worth less in 2017 than it was in 1997), so if you don’t plan on flipping and don’t care about the complexities of offsetting and refinancing and being at the mercy of interest rate fluctuations, I’m going to need an amazingly strong argument to convince me buying outright isn’t the best option.
Right then … after only ever getting 2 responses to any reddit post I’ve ever written, this has been interesting lol
My mum died so I got an inheritance. Plus I had my own savings.
I have already put a chunk in shares. That’s been great - I have someone managing them as I know nothing. But it’s been really interesting and … fruitful.
I earn $85k a year and my current contract ends in July. So good luck to me for actually getting a loan even a small one :/
If I was you, I'd have a 100% offset mortgage. That way you buy the house *and* keep your cash. That way you can buy another house further down the track, or a car, or whatever.
It's better than parting with all or your cash at once as, like others have said, emergencies happen. If it's 100% offset then you're not paying interest anyway so it's really the best way to do it.
Similar situation, I just brought my house outright, no mortgage. I tell you it’s great to have nothing to worry about except paying bills etc. life’s a hella lot easier without the added pressure.
Only you know what’s right for you.
It’s nice to have the cash there in case of emergency. So you could get a mortgage with an offset account and have the cash sit there offsetting your interest. You never know what might happen.
I would definitely get a mortgage even if you have the cash
Once you have a solid emergency fund (3 - 6 months expenses) then cash sitting there is pointless unless you're waiting for an opportunity, but not just because.
The cash is sitting there offsetting the interest there is no reason to not borrow from
The bank and use an offset. You never know when you need cash. You might want to buy something expensive…. There is almost no negatives to getting the loan
Name one… what debt? The cash is 💯 offset in your offset account…
Look at every successful person… they always use the banks money even when they can pay outright.
Personal finance is 80% behavioural and 20% math. There are many reasons not having the debt is the better option. We make better financial decisions when we're in a position of strength and without obligation of making repayments and being subject to interest rates. Just look at the amount of posts here these days asking if they should stop investing and start paying off the mortgage - that is 100% emotional. If we were robots, we would maintain investing, no question because that's the better outcome longer term.
When you deplete the offset account, you start to owe interest.. if you've purchased a house worth more than you would have with cash then that's just extra interest to pay
They can build up a large emergency fund very quickly if the house is paid off and they're working. Leverage as much as possible might be the popular advice on here, but the OP has little reason to do so if they're not comfortable - they can get ahead really fast just by being sensible with income and expenses.
Right at the moment there is very little reason not to just pay in cash.
At some point in the future it might be worth borrowing against your home to diversify your investments.
But the key here is after tax investment returns. If you make an 8% return before tax that’s more like 4% after tax if you’re on the highest rate. When mortgage rates are 5.25 or thereabouts it’s unlikely to be profitable to borrow and invest at the moment. If mortgage rates come back down in the future, you can borrow then.
This is so you can use the rest of the cash to goto Bali every 6 months and live like a king for 2 weeks. If you have a loan, you wouldn't be able to redraw it every 6 months to do this.
You'd actually want to do it the opposite, buy the home with cash and the investment with a loan (to increase your tax deductions)
But yes, you're on the right track with getting 2 instead of one
The answer to this depends on a variety of factors, but most importantly personal preference.
Some people who are saying that are assuming that you are investing the excess money and in their minds getting a higher return than the interest in your mortgage. These people tend to value money over time in my opinion.
But I personally would much rather not have a mortgage and also not have a portfolio as opposed to having a mortgage and also having a portfolio. But I value time and freedom over money.
If it were me I would buy a house outright which would massively minimize my monthly expenses then all the money I was bringing in was my money. Plus then I could slow down at work and take more time to do things I want to do.
That’s just me though, you gotta do what’s right for you.
Having the cash can be good, but it also makes it really easy to borrow more. Say, you find a good deal on something; you can leverage your property and banks generally treat you favorably if you have loans.
From a financial point of view, there isn't a massive benefit from owning outright. But mentally it might help knowing your house is yours.
There’s good debt and bad debt
Those suggesting take out the facility are in the main promoting good debt
Suggestion is you talk to your accountant or financial advisor and discuss your financial goals and see if good debt will help you achieve the desired result.
Mortgage or no mortgage you are in a v good position
Unless you have a burning desire to boost your credit rating, you don’t need one.
Only way I could justify it would be to retain a portion of your funds as liquid cash in the event of emergencies, house repairs etc
Because they are idiots.
Don't let anyone talk you out of buying a house in cash. It is the best decision you'll ever make.
Don't get stuck in the mortgage trap.
How much cash will be left over when you buy the home? Assume 109-112% of list price for additional fees, move in expenses and furnishing. Is this enough for you ti be comfortable? What happens when the roof needs to be replaced right away or you need to replace the water heater? What about a personal emergency like a big medical expense?
What else would you do with the money? Say you put it in an investment account, you can get about 7% a year. If your mortgage is only 5.5%, we’ll that’s 1.5% different you are not able to realize. Maybe this is not enough for you to worry about the hassle of sending in the monthly payment, but maybe it is. That 1.5% compounded over 30 years using a list price of $300k works out to be about $18k. That’s about $600 a year or $50 to pay the monthly bill. Is your time worth $50?
It’s the cheapest interest rate you can get on the highest amount of cash.
$450k for 3-7%? Payable over 30 years? You can’t do better than that anywhere.
Put your cash hard at work in other places.
Ask yourself this… would you give your cash stack to someone for a measly 3-7% or whatever the rates are right now and let them pay you back over 30 years?
You can do so much better.
My 2cents assuming you can indeed afford the mortgage from a serviceability perspectiv is that you should try to get a mortgage for a flexibility reason.
Let's say the house cost 1 Milion and you have 1.5m cash and you can service a mortgage of 1 million.
Scenario 1: you pay cash, let's say it will cost you 1.1 million overall considering stamp duty, etc
Outcome is you have a house fully owned, 400k in cash for emergencies or whatever
If you need more cash you can go to a full cycle of assessment using house as collateral but you still need income for serviceability at that time to get more cash. let's say at that time you don't work you will not get anything out
Scenario 2: you get a mortgage now for 80% with a 100% offset account
You will pay 300k cash (200k for the property and let's say 100k for all other expenses) and the bank will lend you 800k
You have still 1.2m in cash and you put 800k in your offset account, so you don't pay any interest
In case of emergencies/need/want to use the money without a new bank assessment even if you don't work you can pull money from that 800k in offset and do as you please.
You will pay a small yearly fee for the mortgage+offset but is very well worth the flexibility
Also if at any point in time you will no longer live in the house and want to rent it out automatically in scenario 2 you can make the interest of the mortgage tax deductible and use the cash in offset for other purposes, like buy your new ppor
From both scenarios if you are financially literate, have risk appetite and really understand what you are doing you can then draw equity from your ppor through a split loan for income generating purposes (ex. Buy shares) but that I think is something you can decide to do or not at any point.
Good luck !
I would think it would keep your options open.
Potential option, purchase with mortgage and then sit your cash in the offset. No bills and same position, however if you desire to make it an investment property one day you can take your cash and boom instant deductibility for the full amount that you didn’t have before and you get to take your cash with you
I would get a mortgage with the most flexible redraw options , having access to finance at low mortgage rates is great. But if you don’t need to buy a 80k car, and a 100k pool with landscaping and a 100k boat then go with the outright purchase
I always borrow 80% and drop the rest in after the loan settles. It’s nice to have the redraw if you need it. Costs about 350 dollars a year. It depends on your bank but commbank let’s you re jig your repayments on the amount amount owing over the remaining time on your loan so you can also instantly drop the repayments to almost nothing. I don’t own my home outright but I’m pretty darn close these days and I would never give up my access.
I would tell them to get stuffed. It is stupid to pay interest on a mortgage if you don't need to. If you aren't paying a mortgage you can easily save up for other things you want
I would absolutey get the mortgage so you can keep control of your liquidity and invest it. Anything that pays dividends, if you have $500,000 and buy a stock that pays 15% dividends annually (like shares in BHP do) than you can generate $75,000 with that capital by doing absolutely nothing. That services your mortgage and generates cash flow FAR FAR FAR better than bank account interest. You would be getting close to retirement with capital like that. It is a no brainer for me.
Mortgage = death/dead pledge
A deal dies when debt is paid off.
But it can also be interpreted as you die paying a pledge off.
regarding tax deduction- yes debt has merits, some people use debt or existing mortgages to propel into getting additional properties as investments.
Some get mortgage to take advantage of the features like debt consolidation ( home loan has lower jnterest rate than personal loan)
Mortgage can also give you access to banking features not available to those that simply uses to bank to store money
Heaps of books out there. Rich dad poor dad is a popular one
Check out investopedia website, they have good articles about debt
Keeping a loan for a portion of the property, that has a 100% offset attached, and putting the savings in the offset is what I’ve chosen to do. Gives me quick access to that money in an emergency if I need it, without going through a credit check/application/meet serviceability to refinance/have equity in current property market etc.
Actually, go pay for a financial advisor. Make sure they are independent advisor. You will pay more, but with the net worth you have, it will pay itself off in no time. They will help you achieve what you want to achieve. They know the ins and outs of all the approaches that everyone here is suggesting. And if you don't like an option they suggest, simply tell them why, and they will help you understand it more or find another approach that will suit you better. They are there for advice not to hand your money to and hope they do the right thing.
Personally I would take a mortgage with an offset facility and put all the cash in the offset. It gives you full flexibility to utilise that cash if needed, to deploy into investments if you think you can get a better return than the mortgage interest rate
If you want to buy equities I recommend using IBKR and buying ETFs on margin. You will always have extra money in your offset to cover margin calls should it drop.
Over the long term equities return 7-10% (depending on time horizon and global distribution) which is higher than the interest of a margin loan. So this would be a smarter way of deploying your capital than just buying the house outright. It also means your savings are more diversified (not just property, you've taken on some "good debt" and diversified with equities).
As others point out, future returns may be different from historical.
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> You could also mortgage the property after you have bought it. I trap I see as a banker is people think, "ill draw on the equity when I need the cash" not realising that to draw on their equity they need to go through a full credit assessment and when you need cash, often that's when your financial situation isnt great. Happens a lot with retirees who close facilities that they don't think they need, suddenly realise they want to do a renovation but find out that the bank doesn't want to give a 30 year mortgage to a 70 year old and their super drawings don't cover a shorter term.
Thanks for sharing that insight.
I am a lending manager myself, a reverse mortgage would suit this client, home renovations not so important, but sometimes a 70 year old needs to purchase a new car.
Home equity access scheme. Very underrated
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Although if you pay cash for the house, and borrow to buy stocks, the interest is deductible...albeit it may be at a higher rate.
Why not debt recycle? 20% deposit, redraw account for the remaining 80%... best of all worlds, low interest rate, tax deductible interest, get a home, get investment portfolio up and running
Isn’t it common for banks to have a clause that they can fold the money into the loan if you’ve essentially paid it off?
You wouldn't pay it off, you deposit 79.99% into the redraw account* (check with your bank at what point theyll auto close the redraw i.e. (when the balance is 1c, or $1, or $0.00) you then take it out again and send it to your brokerage account. * I think its common for banks to allow a number of splits up to a specified amount, i.e. no more than 5 splits and each must be less than 100k - but im not sure about that, best to check with broker/lender
Yes, right next to the annual loan fee clause that makes the bank money for zero risk. Banks can do it, but it's rare because keeping the customer means they are more likely to pick you for other products.
It's effectively the same as paying cash and taking out a loan to buy shares with your property as collateral....but more complex.
The interest rates for a house are usually lower than margin loans and you don’t get margin calls.
If property is collateral no need for a margin call.
You won't get the same low rates as a PPOR mortgage.
A line of equity is very similar rate wise. Had one some years back at only 0.15% more than my heavily discounted PPoR loan.
IBKR interest rates are a lot lower than a mortgage.
Is it possible to get a line credits using a house that is already paid off with rates similar to new home loans to all this?
Lines of credit have been horribly uncompetitive for a long time in terms of interest rate.
I just checked CBA and it's 9% i had an unsecured personal loan from ING less than that, what a joke. So i guess it's good to have a mortgage you can use for debt cycling
Is it possible to buy one million dollars of stock with a 200k deposit and not get margin called when the stocks values drop?
If you use your house as collateral, yes.
If you’re a bank in the US, it’s possible with a few billion dollars.
It's not really possible to borrow to buy stocks though, or not easily
If you have a house as collateral it's not that hard. Major banks offer it
Did this to buy private equity. not a problem at all as long as you don't exceed like 80% LVR or similar, and keep it within your finances means.
Is it because the return from stocks of 10% (plus any capital gains from the house) is greater than the cost to buy it, which is the mortgage interest of 5%?
If you pay cash all you get is capital gains. If you borrow 80%, you still get the capital gains and if you debt recycle the remaining into shares, you get the capital gains from them too plus the interest is tax deductible.
But with a mortgage you are using now leverage
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It's known as the problem of knowledge from induction. One example to highlight this is a turkey who observes how humans treat it. It gets increasingly more confident that humans have its best interest at heart as each week passes, until the Wednesday prior to Thanksgiving, when it has a harsh readjustmen to reality. Nassim Taleb covers this in detail in a book called the Black Swan, but there are many situations where relying on past knowledge can leave you worse off and exposed to the event that hasn't happened yet.
The lacklustre mitigation of the climate crisis in the last few decades will likely make us all look foolish.
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I'm not sure a 10+ year old paper is really the best citation for your claims in a field that moves pretty fast. And especially in a field that relies on computer modelling that gets updated as quickly as computing power advances. I fear you may be falling into the "a little bit of knowledge is a dangerous thing" trap. Knowing statistics =! knowing climate science. Is there uncertainty? Yes. Does the IPCC talk about that in great detail in its reports? Yes. Are we going to mitigate some effects of climate change? Probably. Are we going to mitigate all of them? Well, no. Considering we're already seeing those effects now.
> This'll get down votes, but Im confused by climate science. That’s the only true thing you said. lol You ARE very confused about climate science. I’d suggest not commenting in it until you understand it better.
Not even close. There's a big lag between emissions and climate response. The worst of our emissions over the last 10-20 years, we've not even seen the effects of yet. I think there's also an underlying assumption in your response that climate change is linear - it'll gradually get worse, but if we fix it in time it'll gradually get better. This might seem intuitive but many things in science defy intuition. There is no reason to assume a linear response. There could be a runaway positive feedback loop hiding in plain sight that we trip in the next decade, causing an irreversible and drastic change to the climate that could eventually cause the starvation of billions. We can't be 100% sure about anything because there are so many variables, although we do know more and more over time, and the new knowledge that were do find keeps pointing at more adverse risks. It's down to risk - the "no need to panic" stance could cost us everything. We know that pumping billions of tonnes of CO2 into our atmosphere is overall not a good thing. To continue this behaviour is an image risk with extremely high stakes. The last point - that we're correcting it with time to spare - is a very odd stance to take. Our global emissions are higher than ever, see https://ourworldindata.org/grapher/annual-co-emissions-by-region. This claim is demonstrably and utterly false.
My comment was only intended backing what markets growing year on year can happen forever. They can’t on this planet with finite resources and the likelihood that climate crisis will throw a spanner in financial markets. Also not panicking. I used “likely” deliberately as there is some uncertainty as to when it will affect you and me directly. For those who have been flooded multiple times, houses burnt in recent years, insurance premiums skyrocketing or no frozen chips at your supermarket it already has.
I think the disparity between what you've read and interpretred and what current climate scientists are discussing is the very reason why Climate Science is its own field. The best part about scientific society is that we as individuals dont have to know everything. I don't need a computer science degree to operate my computer because someone that DOES have one built it for me. I dont need need to run computer models to predict climate change because there are specialised climate scientsists that do it for me. We just have to trust that the experts in their field are doing it right and ehen every climate scientsist is saying the same thing you can be confident that what they are sayibg is right. If climate scientists were split on the issue, youd be perfectly justified with your skeptisism. Like cancer treatment, every oncologist likes to go about it a different way, they use different treatments because there isnt one solution, there isnt a consensus on how to treat cancer. We have consensus on the climate. The only question thay remains is around exactly how bad it is going to get.
In terms of return on investment? No, several studies have shown that usually investing in stocks what you would have paid in mortgage has historically yielded a better return
Will never be true, anymore. Running out of oil and and what not. Ohh and climate breakdown
>you'd have made a better return by putting down 20%, borrowing 80%, and putting the rest of your cash into stocks Probably only true if you are a robot. We, as humans are emotional. The only people who would actually not tinker with and touch the funds over the long term (to effectively capture this better return you speak of) are those that don't realise they have money invested and those who are dead. We also make better decisions,( including financial ones) when we are in a stronger position, that of which isn't being subject to interest rate changes and a 30 year obligation to make repayments.
Will it always be a Ppor? You can guarantee that nothing in your circumstances will change? Myself, I've bought 3 forever homes already, but things change. Second - getting a loan and then completely offsetting it gives you flexibility and costs you something like 300 per year - it's a great deal. Next you can set up loan splits, put money into the loan and the redraw and invest for some debt recycling tax benefits. Third, if you don't want to debt recycle then lets say the market crashed 50% and you want to buy shares, the money is available to you to do that. In the end a loan might not be right for you, but there are lots of reasons why it could be useful to you.
I’m net positive with an offset and investments however I pay mortgage interest on about 100k. Things are changing with interest rates and I’m lowering the amount I pay interest on. Has been a good way to borrow against myself and invest
^ all fantastic advice. Another fantastic alternative to buying outright is that whatever you pay on rent now just becomes a new savings deposit each week. If you don’t have enough money for something in the future you have an asset to borrow against and you are t paying for the roof over your head weekly, you’ll crush it. That’s my take
100% agree with all of this and just to add one additional comment. Banks like Suncorp have deals where they waive the annual fee for the life of the loan so that $300 annual fee you mentioned becomes nothing. In addition you get $3000 cashback and a platinum credit card which you can link to qantas frequent flyers if you’re a points chaser. Basically means the bank would be paying OP to have a feee line of credit.
This. A 20% deposit with the rest in offset is the more flexible option. It keeps your cash liquid so you could react to changing economic times more strategically if you were inclined. If you don’t need to build other sources of wealth, you don’t need to complicate things. Buying outright is the more straightforward approach.
People love to think optimistically in these scenarios, most people will tell you a mortgage is good because they think if they were in your shoes they would be able to optimize the returns via stocks or whatever else (which is probably going to be true if you are diligent). People can be stupid and impulsive, for example once I started making a lot of money you know what I did? I became a gacha game addict and started spending $30k a year in videogames a year. You bet I wouldn't be doing that if I had locked all my money away in a house Only you can know what is good for you, my brother faced the same problem, he came into a lot of money and couldn't decide whether or not to buy a house outright or invest it in other ways and because he has had gambling problems and drug issues in the past he decided he couldn't trust himself with access to large amounts and just bought a house outright, he has no regrets and is sleeping peacefully while we're all frothing at the mouth over interest rate rises
> I became a gacha game addict and started spending $30k a year in videogames a year Unfathomably based, you only live once.
Even after 30k you didn't get Ganyu, did you?
Lmao no I didn't but I did c6 Kazuha and Nahida
I'm a big fan of just keeping it simple and paying off the mortgage/not having one in first place. No one ever regretted being debt free.. However. Keeping funds in mortgage offset facility can give you: liquidity in an emergency, if you haven't got this covered. Liquidity if things change, ie. You want to buy a new place and want to have a deposit ready for obtaining finance. Also if you decide to rent it out you can negatively gear the interest portion.
What about that good feeling of paying interest? And that thrill when interest rates go up? They just like to spice their life.
You could run a strategy called debt recycling. Say you buy a home outright, you'd have 100% equity in it. You could then take out a loan, pay it down and then re-draw a separate loan for investment purposes. Pros: if you're on a high income, you can 'negatively gear' into growth assets, such as another property or shares, which would give you a growing asset and tax deductibility on the interest from that loan. Cons: you would have to get a net return on your investment, greater than your interest and expenses, in order for it to be worthwhile. If you had net expenses of 6%, you'd need an investment that returns greater than 6% for it to be worthwhile.
While there’s nothing wrong with being debt free there’s a strategy where you get a loan against that property to then invest with an derive and income and the interest on that debt becomes tax free. Your mortgage is some of the cheapest debt you can ever get so if you’re going to borrow against something it should be your home.
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It all gets priced into expected future returns of the asset you’re buying. So I wouldn’t do so if the P/E of what I’m buying is only going to be low single digits like back in 2021. I work in an industry with a lot of Private Equity investment and I’m looking to buy, where previously a lot of these were offering a 9% estimated return, but if I assume a 6% interest rate I’m not going to take on that much risk in order to eek out that small a difference. And I’m not the only one apparently as I just saw one a few days ago at a bit over 14%. (Note these aren’t truely passive investments but you get my point and the same principle applies to stocks)
Haters will hate... Congrats, your being debt/mortgage free (the ideal outcome) along with some form of steady income.. The kicker is 'you' have the option to remortgage (if one wanted to) In my eyes you 'hold the keys/power' not a bank charging interest on a loan amount, nor is there a caveat on your house/asset = can be considered (for some) your long term savings etc No school me; how did you become mortgage free?
It's nothing to do with hate. It's about maximising the potential of the dollar. The people who recommended mortgage to OP doesn't hate, infact just the opposite.
Interesting concept, but educate me & my small brain.. how would a remortgage/debt benefit OP? My simple mind is focused not owing, not being charged interest, not risking the loss of the asset
If you have a loan, you can use the money in your offset for debt recycling which makes the interest on the loan partially tax deductible. Historically you've always been better having a "good debt" of a mortgage (back when we had low interest rates of like 2%) and then putting all your money in the stock market which on average yields 7%, so you end up way ahead in the long term. Finally, if your loan is fully offset you're only paying a tiny amount ($300-400) in mortgage costs to keep the loan open, which gives you basically a free line of credit if you ever want to buy a Bugatti.
>buy a Bugatti. Solid financial advice. 😆
>you can use the money in your offset for debt recycling >if your loan is fully offset you're only paying a tiny amount ($300-400) in mortgage costs to keep the loan open, You can only do one or the other though? A lot of people talking about the benefits of leverage/debt recycling AND the benefits of the fully offset loan reducing the interest
Yes. And if you don't have a mortgage, you get NEITHER benefit.
>And if you don't have a mortgage, you get NEITHER benefit. You get the benefit equivalent to the full offset option. You don't have any repayments or debt.
Have 20% of your purchase price in cash incase something is wrong with the house that you didn’t realise or you just want to make changes.
Most people would rarely even consider your option, so they have convinced themselves that being saddled with huge amounts of debt is a prudent financial move. Ignore them.
Tbh if you don’t think you need a loan then don’t get one. It’s always good to not be in debt. People just see it as a money making opportunity, if that doesn’t matter to you then ya. That’s my opinion anyway.
At 6% interest rates their argument falls apart. The risk free return of paying in cash significantly out ways that of the “invest the rest in stocks” line of thinking that others are proposing.
Exactly. It makes little sense to be paying interest on a debt if you don’t have to. The only “financial experts” I’ve ever seen advocate for taking on unnecessary debt are the types who are paid to talk about wealth generation, and when you look a bit deeper you find out they’ve been bankrupted 4 times.
This is just BS. Debt recycling is absolutely an option. You don't have to do any of that even for it to make sense. Just leave it in the offset account in the worst case scenario. The current situation with rates and inflation is not sustainable, it will change soon.
Why take some risk when no risk is an option? Every loan you take has counter party risk, every bank deposit has counter party risk. Multiple US banks are collapsing this week, deposits above $250K wiped out. This CAN happen to you, and to Australian banks. It is not a certainty that your offset account is in fact safe. Outright ownership of the home has no default risk. It is your asset. Total cost of $500K mortgage at 6% over 30 years: ~$1.1 million So you get a (ignoring inflation) 55% immediate discount by buying in cash. I would take that deal in the supermarket so why shouldn’t I take it with my shelter? Pile your mortgage payments you’re now not making into stocks ($400K mortgage @6% is 30k per year for 30 years) and at 8% market returns gets you to $3.3 million. No interest paid in the process. No leverage, no debt-based risk, pretty epic return. Obviously the return on debt recycling and good tax structuring would be higher, not arguing that point. My point is, is the above not enough? Would it not have better ability to sleep at night returns?
When was the last time an Australian bank closed down and people lost their deposits? As to the stocks, you are not making any sense. There is no additional cost of getting a mortgage if you have full access to cash to buy anyway. Instead of buying the property outright, you put that in the offset. There is no additional 'mortgage payments you are now not making'. It's exactly the same scenario as buying outright, as your repayments go from the offset to the loan at zero interest. You buy your stocks or whatever investment vehicle you want to put in using the 'imaginary mortgage payments' you are making for whatever returns you get. This is basic. This gives you access to your money instead of giving it to the bank. Debt recycling benefits is in top of this if you wish to take the risk.
Volt bank collapsed last year. Banks fail, read a history book. Every country, every civilisation. It happens. My point is risk management. Know and evaluate your risks. People using offset accounts don’t own their house, the bank does. It’s a personal, subjective opinion on evaluating the risk to return, if some insane event happens and my bank goes under how much can I lose, compared to how much do I stand to benefit from the offset facility? Not everyone values higher returns above peace of mind. You are technically making repayments if its coming from the offset…
First, Never heard of this bank but quick Google search says Volt bank had 44 accounts with 114k in deposits (in all) which were all returned. So nobody lost thier money. Second, if you have 100% to buy why would you select popup banks and not tier one? Third, this is a finance sub, higher returns is kind of the point of it. If you are looking for mental peace advice, r/Buddhism might suit better.
Still, a bank failed in Australia last year. Why involve middlemen and not do a direct transaction with the seller? I’m providing alternatives to your rigid line of thinking, because a forum about finance should explore and examine the entire nature of the topic and not the current state of it.
>Debt recycling is absolutely an option. You only debt recycle if you've already made the decision to invest and are aware of those risks. If you're intention is to be debt free, then it's not the option.
Having a loan against your home/asset gives you flexibility and liquidity. Nobody really knows what the future markets are going to look like but OP has an option to tap into the value of the property if he ever wanted to. If OP doesn't do anything with those funds, who really cares, they could completely offset the loan amount and pay zero interest on it and just pay the small amount in servicing fees. One thing that people forget, is that everyone's situation changes, wife may stop working to have children or you start a business, then the banks don't really want anything to do with you. Having that line of credit open when you can, could be a godsend. The funds don't necessarily need to be for an investment, it could be used as a line of credit for renovations or a new car. Those reasons make it a valuable option for me.
Fair, I don’t think having access to debt is as necessary as everyone makes it out to be though. Once you have no mortgage you rebuild cash savings insanely quickly. Assuming you don’t go all keeping up with the Jones’, you should be additionally saving the equivalent of your mortgage payments every month. You literally don’t need more loans after a couple of years, as you can’t help but have savings. Those savings then pay you interest (shocking I know haha) So that $40K line of credit at 6% is 10% more expensive than savings that pay you 4% interest. If interest rates stay around here for 5 years I guarantee the culture around debt will change drastically.
The point around what the interest rates is or how high it is, isn't really relevant though. Home loan rates will always be the cheapest line of credit if you ever needed it. My point is that you never know what life will throw at you and it's valuable to have that liquidity available to you if you ever need it. The cost of having that line of credit available for the next 30 years is negligible and in my opinion a valuable safety net.
I’ll concede the access to liquidity is useful, but I’ll add that higher interest rates should have encouraged savings behaviour and you would given some time in such an environment have accrued your own liquidity. What the interest rate is, should change where you pull that liquidity from. Another commenter made the point from a bankers perspective of having seen 70 year old retirees with closed mortgages unable to access credit facilities to do renovations, simultaneously saying they aren’t credit worthy but if they had the line of credit pre-existing they would be able to use it. Banks (and credit facilities) should be treated in an adversarial way, because that’s how they view you, you’re either a threat or a cash cow.
Even if i had 20 mill in the bank id get a mortgage. Put my minimum deposit down. Completely offset the loan so it is interest free. Now you have an assett that's appreciating that you only tied up 20% of the value Your money is leveraged rather than tied up. You only have to pay the mortgage fees. The house will slowly be paid off by the monthly repayments over 10-15 years (much faster than 30 since you are fully offset from day dot). Debt is great, allows you to buy big assets without having to tie up all your cash. Why is having cash a good thing? You need it to pay stamp duties to buy more assets. Park the excess cash in offset accounts to reduce debt quicker and then borrow against your other assets rsther than using cash. Then as others said in here: debt cycling and div 7 loans and stuff allow you to offset even more and make even your ppor tax efficient..
My man, you had me at the first sentence. People need to learn how to use debt like you.
This is the only answer needed.
>Even if i had 20 mill in the bank id get a mortgage. Put my minimum deposit down. Completely offset the loan so it is interest free. If I had 20mil, and buying a 1-2mil PPOR, I'd probably just pay cash - my time would be worth too much to waste it mucking around with banks, credit assessments and loan documentation. >Now you have an asset that's appreciating that you only tied up 20% of the value If you're fully offsetting the loan, then those funds would be effectively tied up if they are to do the job of offsetting. >Your money is leveraged rather than tied up How is it being leveraged if it's being used to offset the loan? >The house will slowly be paid off by the monthly repayments over 10-15 years (much faster than 30 since you are fully offset from day dot). >Debt is great, allows you to buy big assets as you intend to keep the loan fully offset to achieve this 10-15 year pay off instead of 30 yrs,, then you aren't utilising the debt/leverage? You might as well just pay it off
Yeah but why keep biggering and biggering, 20 mil can already buy a jetski
Please stop hanging out with silly folks If you ever need lots of cash, take out a loan then
We had a situation where we could afford to buy a nice house outright or do investment strategies like people are suggesting. Stress of strategies and all we went with no mortgage, couldn't be happier
Buying outright is going to put you in a fantastic low cost of living situation. It’s up to you to do the maths now on how long that difference in money would take for you to save with less financial obligation. Is it worth paying outright and having less obligations and more ability to use your money for other things day to day? Or could you do a lot with that money now through other investments making it worthwhile to carry debt?
This is why personal finance is personal. Your needs and their needs /aspiration are different. What works for them might not be for you.
Aussies think it's illegal to have money unless you borrowed it from a bank.
Mortgages are traps to make bankers wealthy. If you have cash. Pay cash and stick it to the man!
Buy it outright, install solar, buy an EV, plant your own fruit and vegetables and live like many Australians do. Oh yeah, for cash flow, buy at least 5 IPs, so you and your kin never need to work again. Also buys you membership into the NIMBY movement.
Because people like to use their houses as cheaper credit cards.
Neither do I. If you can pay cash, pay cash. I would!
Thinking about it .. I'd probably split that cash into three or four chunks, put one in the stock market, and use the other three as deposits on a PPOR and two IPs. Or something like that. It's all a theoretical exercise anyway
Here's the reason: why pay for a house with your money when you can pay using the bank's money, interest free? Most people who take a mortgage out keep the money they have against the loan in an offset account. You pay the principal back slowly, at zero interest if you offset it at 100%. You now have more financial freedom in case of emergencies. The net cashflow on both options is the same, except the option you took means you have no cash and no debt, and option 2 is you have cash but also the same liability.
Firstly - I highly recommend you find a financial planner to discuss your situation and plan for the future. Not just your mortgage. Secondly (general advice) this primary reason to go with a mortgage, potentially with an offset account you’ll retain access to your liquid cash whilst offsetting 100% of the interest of the home loan. Meaning you’ll still siting on an asset and your cash. This also frees that cash for alternative investments that could see a return greater than the appreciation of a property or even the interest on the loan. In short, if invested correctly the earnings could ultimately pay your mortgage repayment and then some. Again, seek advice from a financial planner and make your money work for you.
Possibly dropped on their heads as children, but likely they just want you to be just like them/projecting. Remember debt is deductible based on what the funds were used for - so if you use debt to buy your PPOR it’s not deductible. It’s better to just buy the place outright if you can afford it - you can always take an equity loan for investment purposes later and the interest will be deductible. People are basically telling you NOT to skip the step to wealth that they all struggle with and takes a decade or more of debt recycling to achieve.
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>borrowing and holding shares. This is a separate issue to taking out a mortgage for or buying a house outright? >you can just fill the offset with cash and then still have shares aswell You can't fully offset the mortgage whilst having shares though, that's why it's leveraging and adding risk. >Its free money Nah, nothing is free. >Any healthy business has debt Plenty of healthy debt free businesses too.
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>In terms of tax reasons: If you buy a PPOR with a loan, you can do something called debt recycling. You don't do debt recycling because of tax reasons though, you do it because you've already made the decision to invest and understand the risks involved.
Opportunity cost. That money could potentially be used to generate more income than interest savings.
What about peace of mind? - being in a place of higher confidence changes how you make decisions, including financial decisions.
I don't disagree. If you're an astute investor it could be significantly more beneficial to throw the lions share elsewhere. If not I can't see it being bad?
It's the whole make money work for you thing. Debts are tax deductible if they're being used for investments. Though you could just take the safe route and use your surplus income instead.
It can help with credit rating/history - if you manage it you can also generate a better return on your own money than the mortgage interest rate is. In rising rate environment and a market prone to shocks, I don't think that is the case right now. Most people in your situation would take a 20/80 loan and fully offset the 80. An offset account is 250-300/year and it means you can access the cash at any point should you need. You just make payments from the offset account directly against the capital each month and can build a credit history while having a large safety net.
If buying your house outright will still leave a nice healthy emergency fund that you will continue to grow (because you don’t have to pay a mortgage!!) then I really don’t see the issue. Houses don’t really go down in value over the long term (name one suburb in Australia where a house was worth less in 2017 than it was in 1997), so if you don’t plan on flipping and don’t care about the complexities of offsetting and refinancing and being at the mercy of interest rate fluctuations, I’m going to need an amazingly strong argument to convince me buying outright isn’t the best option.
Right then … after only ever getting 2 responses to any reddit post I’ve ever written, this has been interesting lol My mum died so I got an inheritance. Plus I had my own savings. I have already put a chunk in shares. That’s been great - I have someone managing them as I know nothing. But it’s been really interesting and … fruitful. I earn $85k a year and my current contract ends in July. So good luck to me for actually getting a loan even a small one :/
If I was you, I'd have a 100% offset mortgage. That way you buy the house *and* keep your cash. That way you can buy another house further down the track, or a car, or whatever. It's better than parting with all or your cash at once as, like others have said, emergencies happen. If it's 100% offset then you're not paying interest anyway so it's really the best way to do it.
You can get a mortgage and keep your cash in a 100% offset account- keeps your money easily accessible when needed
Similar situation, I just brought my house outright, no mortgage. I tell you it’s great to have nothing to worry about except paying bills etc. life’s a hella lot easier without the added pressure. Only you know what’s right for you.
It’s nice to have the cash there in case of emergency. So you could get a mortgage with an offset account and have the cash sit there offsetting your interest. You never know what might happen. I would definitely get a mortgage even if you have the cash
Once you have a solid emergency fund (3 - 6 months expenses) then cash sitting there is pointless unless you're waiting for an opportunity, but not just because.
The cash is sitting there offsetting the interest there is no reason to not borrow from The bank and use an offset. You never know when you need cash. You might want to buy something expensive…. There is almost no negatives to getting the loan
No negatives to saddling yourself with debt now just in case you maybe might need funds one day in the future? I can think of a few.
Name one… what debt? The cash is 💯 offset in your offset account… Look at every successful person… they always use the banks money even when they can pay outright.
>Look at every successful person… they always use the banks money even when they can pay outright. What about Dave Ramsey?
Keep providing the exception not the rule lol
>There is almost no negatives to getting the loan You may tend to over spend on a loan
Can’t help someone’s discipline… that’s not the fault of the loan…
Personal finance is 80% behavioural and 20% math. There are many reasons not having the debt is the better option. We make better financial decisions when we're in a position of strength and without obligation of making repayments and being subject to interest rates. Just look at the amount of posts here these days asking if they should stop investing and start paying off the mortgage - that is 100% emotional. If we were robots, we would maintain investing, no question because that's the better outcome longer term.
It's nice to outright own your primary residence in an emergency as well.
You do…. You have an offset… I think some people need some lessons in finance 😂😂
When you deplete the offset account, you start to owe interest.. if you've purchased a house worth more than you would have with cash then that's just extra interest to pay
But he’s got the cash to own it outright so the offset would be 100%
They can build up a large emergency fund very quickly if the house is paid off and they're working. Leverage as much as possible might be the popular advice on here, but the OP has little reason to do so if they're not comfortable - they can get ahead really fast just by being sensible with income and expenses.
Right at the moment there is very little reason not to just pay in cash. At some point in the future it might be worth borrowing against your home to diversify your investments. But the key here is after tax investment returns. If you make an 8% return before tax that’s more like 4% after tax if you’re on the highest rate. When mortgage rates are 5.25 or thereabouts it’s unlikely to be profitable to borrow and invest at the moment. If mortgage rates come back down in the future, you can borrow then.
This is so you can use the rest of the cash to goto Bali every 6 months and live like a king for 2 weeks. If you have a loan, you wouldn't be able to redraw it every 6 months to do this.
He could buy a house outright and then not have to work as much and live like a king in Bali without worrying about repayments or anything.
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You'd actually want to do it the opposite, buy the home with cash and the investment with a loan (to increase your tax deductions) But yes, you're on the right track with getting 2 instead of one
Don't do this.
Just use the equity to get another property and rent it out. Get passive income
They are wrong. Simple! Don’t listen to them. Dept of any description is never better than asset ownership. Sounds like jealousy to me.
The answer to this depends on a variety of factors, but most importantly personal preference. Some people who are saying that are assuming that you are investing the excess money and in their minds getting a higher return than the interest in your mortgage. These people tend to value money over time in my opinion. But I personally would much rather not have a mortgage and also not have a portfolio as opposed to having a mortgage and also having a portfolio. But I value time and freedom over money. If it were me I would buy a house outright which would massively minimize my monthly expenses then all the money I was bringing in was my money. Plus then I could slow down at work and take more time to do things I want to do. That’s just me though, you gotta do what’s right for you.
The only reason I know of would be if you may change it to an IP in the future, any other use I know of you could just take out the mortgage later.
Always try to be the ‘head’ and not the ‘tail’. Owing someone something makes you tail whether it’s‘strategic’ or not.
i have a property i own outright, there is solar on the roof and a live in it and pay out very little, nice and chill.
People are suggesting you use your cash for investing. Hopefully this will make an after tax return greater than the interest rate on your mortgage
Having the cash can be good, but it also makes it really easy to borrow more. Say, you find a good deal on something; you can leverage your property and banks generally treat you favorably if you have loans. From a financial point of view, there isn't a massive benefit from owning outright. But mentally it might help knowing your house is yours.
There’s good debt and bad debt Those suggesting take out the facility are in the main promoting good debt Suggestion is you talk to your accountant or financial advisor and discuss your financial goals and see if good debt will help you achieve the desired result. Mortgage or no mortgage you are in a v good position
>There’s good debt and bad debt And there's no debt.
Unless you have a burning desire to boost your credit rating, you don’t need one. Only way I could justify it would be to retain a portion of your funds as liquid cash in the event of emergencies, house repairs etc
Right now, Id just buy it personally lol
Don’t. No better freedom than owning your home outright
Because they are idiots. Don't let anyone talk you out of buying a house in cash. It is the best decision you'll ever make. Don't get stuck in the mortgage trap.
How much cash will be left over when you buy the home? Assume 109-112% of list price for additional fees, move in expenses and furnishing. Is this enough for you ti be comfortable? What happens when the roof needs to be replaced right away or you need to replace the water heater? What about a personal emergency like a big medical expense? What else would you do with the money? Say you put it in an investment account, you can get about 7% a year. If your mortgage is only 5.5%, we’ll that’s 1.5% different you are not able to realize. Maybe this is not enough for you to worry about the hassle of sending in the monthly payment, but maybe it is. That 1.5% compounded over 30 years using a list price of $300k works out to be about $18k. That’s about $600 a year or $50 to pay the monthly bill. Is your time worth $50?
It’s the cheapest interest rate you can get on the highest amount of cash. $450k for 3-7%? Payable over 30 years? You can’t do better than that anywhere. Put your cash hard at work in other places. Ask yourself this… would you give your cash stack to someone for a measly 3-7% or whatever the rates are right now and let them pay you back over 30 years? You can do so much better.
Because they want you to suffer like they are
My 2cents assuming you can indeed afford the mortgage from a serviceability perspectiv is that you should try to get a mortgage for a flexibility reason. Let's say the house cost 1 Milion and you have 1.5m cash and you can service a mortgage of 1 million. Scenario 1: you pay cash, let's say it will cost you 1.1 million overall considering stamp duty, etc Outcome is you have a house fully owned, 400k in cash for emergencies or whatever If you need more cash you can go to a full cycle of assessment using house as collateral but you still need income for serviceability at that time to get more cash. let's say at that time you don't work you will not get anything out Scenario 2: you get a mortgage now for 80% with a 100% offset account You will pay 300k cash (200k for the property and let's say 100k for all other expenses) and the bank will lend you 800k You have still 1.2m in cash and you put 800k in your offset account, so you don't pay any interest In case of emergencies/need/want to use the money without a new bank assessment even if you don't work you can pull money from that 800k in offset and do as you please. You will pay a small yearly fee for the mortgage+offset but is very well worth the flexibility Also if at any point in time you will no longer live in the house and want to rent it out automatically in scenario 2 you can make the interest of the mortgage tax deductible and use the cash in offset for other purposes, like buy your new ppor From both scenarios if you are financially literate, have risk appetite and really understand what you are doing you can then draw equity from your ppor through a split loan for income generating purposes (ex. Buy shares) but that I think is something you can decide to do or not at any point. Good luck !
I would think it would keep your options open. Potential option, purchase with mortgage and then sit your cash in the offset. No bills and same position, however if you desire to make it an investment property one day you can take your cash and boom instant deductibility for the full amount that you didn’t have before and you get to take your cash with you
I would get a mortgage with the most flexible redraw options , having access to finance at low mortgage rates is great. But if you don’t need to buy a 80k car, and a 100k pool with landscaping and a 100k boat then go with the outright purchase
If you can invest those monies at a higher return then yours getting a cheap investment loan.
I always borrow 80% and drop the rest in after the loan settles. It’s nice to have the redraw if you need it. Costs about 350 dollars a year. It depends on your bank but commbank let’s you re jig your repayments on the amount amount owing over the remaining time on your loan so you can also instantly drop the repayments to almost nothing. I don’t own my home outright but I’m pretty darn close these days and I would never give up my access.
Because they’ve been convincing themselves getting their own over-leveraged mortgage was a good idea for so long they’ve started to believe it
Good for you. They're jealous and want you to suffer.
I would tell them to get stuffed. It is stupid to pay interest on a mortgage if you don't need to. If you aren't paying a mortgage you can easily save up for other things you want
I would absolutey get the mortgage so you can keep control of your liquidity and invest it. Anything that pays dividends, if you have $500,000 and buy a stock that pays 15% dividends annually (like shares in BHP do) than you can generate $75,000 with that capital by doing absolutely nothing. That services your mortgage and generates cash flow FAR FAR FAR better than bank account interest. You would be getting close to retirement with capital like that. It is a no brainer for me.
Mortgage = death/dead pledge A deal dies when debt is paid off. But it can also be interpreted as you die paying a pledge off. regarding tax deduction- yes debt has merits, some people use debt or existing mortgages to propel into getting additional properties as investments. Some get mortgage to take advantage of the features like debt consolidation ( home loan has lower jnterest rate than personal loan) Mortgage can also give you access to banking features not available to those that simply uses to bank to store money Heaps of books out there. Rich dad poor dad is a popular one Check out investopedia website, they have good articles about debt
Keeping a loan for a portion of the property, that has a 100% offset attached, and putting the savings in the offset is what I’ve chosen to do. Gives me quick access to that money in an emergency if I need it, without going through a credit check/application/meet serviceability to refinance/have equity in current property market etc.
Actually, go pay for a financial advisor. Make sure they are independent advisor. You will pay more, but with the net worth you have, it will pay itself off in no time. They will help you achieve what you want to achieve. They know the ins and outs of all the approaches that everyone here is suggesting. And if you don't like an option they suggest, simply tell them why, and they will help you understand it more or find another approach that will suit you better. They are there for advice not to hand your money to and hope they do the right thing.
Personally I would take a mortgage with an offset facility and put all the cash in the offset. It gives you full flexibility to utilise that cash if needed, to deploy into investments if you think you can get a better return than the mortgage interest rate If you want to buy equities I recommend using IBKR and buying ETFs on margin. You will always have extra money in your offset to cover margin calls should it drop. Over the long term equities return 7-10% (depending on time horizon and global distribution) which is higher than the interest of a margin loan. So this would be a smarter way of deploying your capital than just buying the house outright. It also means your savings are more diversified (not just property, you've taken on some "good debt" and diversified with equities). As others point out, future returns may be different from historical.
Then dont do it if you dont want to