Tim's Questions

Tim, a Canadian commenter, has asked some questions about the different facets of my mortgage. I thought I'd answer them in a post, in case anyone else out there is wondering.

I mentioned that I was using my offset account as my emergency fund. I'm not sure what other countries call this but basically, the offset account interest is applied straight to your loan. So let's say I earn $10 a month interest from a regular savings account. Come tax time, I would have to declare all of that interest and pay tax on it (no idea if this is the case in other countries). However, if I earn $10 a month interest from my offset account, that $10 is immediately applied to my mortgage and I do not have to pay tax on it at the end of the year. Another benefit is that I can take money from my offset account whenever I want. A lot of banks charge you to redraw on your mortgage, but you are not charged for taking money out of your offset account. I don't imagine it will make a huge difference to my mortgage, but it will make a slight difference and it will also reduce the tax I pay.

My mortgage is a variable loan. Tim asked if I could fix it for the life of the loan. I have read on a lot of blogs people who have fixed their loans for the entire duration. During my research before borrowing, I did not come across any loans that you could fix for the whole time. Most only allowed you to fix for three years and then reassess. Now I may have missed the ones that did allow you to fix for the whole time but as far as I know, this is not done in Australia. Unfortunate.

Tim also asked if I planned to rent part of my house, mentioning the basement. Tim, basements are definitely a North American type thing. I have never seen a house in Australia with a basement (though I'm sure some do have them). Attics are also not that popular here. I do have two spare bedrooms though and I have toyed with the idea of renting one of them out. I am not comfortable renting to a stranger and I don't know too many people in the area yet, so I will have to wait and see. It would make things a little easier each month though as I live in a fairly high-rent area.

Thanks for the questions Tim. Keep them coming!