Mortgage Repayments Calculations
ING Home Loan Repayment-Calculator-Yealy Breakdown
ING Home Loan Repayment-Calculator-Yealy Breakdown-Mortgage Offset
Our fixed interest introductory rate of 2% ends on SEP23. Using the ING Home Loan Repayment Calculator, we’ve calculated the following:
At our current intro rate of 2%, we’re paying about 955/fortnightly in PI.
Once the fixed rate converts to variable rate, assuming at 6%, we’ll be paying about 1.5K/fortnightly. That would be about a 57% increase, or about 14.2K increase per year. That’s just insane.
Another calculation that we’ve done was to determine the target loan amount in order to keep the repayments the same at 955/fortnightly. Using the calculator, it’s calculating at 354K. We’re currently at about 530K outstanding loan, so 530K-354K=176K by SEP23. We would still have about 6 months of repayments remaining before SEP23 variable rates kick in, so (6x2)x955=11.5K of extra payments. 530K-11.5K=518.5K-354K=164.5K. We currently have about 150K in our ING Mortgage Offset Account, so we have a shortfall of about 15K that we would need to cover.
From the EFI taxable account, we can liquidate some of the income funds that are paying lower than DY 6% including GSBG27, MQG, WES, and some banks including NAB and CBA. If we still require more funds, then we’ll reassess our risk for the ETFs.
Regarding interest rates, if we calculate 170K x 6% interest rate = 10.2K/annually of interest saved. Less repayments in interest payables also means cost savings of 10.2K/annually, hence, more disposable income. Based on the calculations results, we can save about 217K in total interest payables (589K-372K) over the remaining outstanding loan period. That’s awesome.
Our mortgage repayments is paid automatically to the mortgage offset account from Kathy’s Salary and all we would need to do is keep about 170K balance to keep the mortgage repayment amounts the same. This being said, if the variable interest rates continue to increase, we will continue to increase our balance.
Hypothetically, if we were to consider reinvesting the full 170K amount instead of keeping the funds in the mortgage offset account, we would need to account for opportunity cost risk. Using the 5-Year average of the ASX 200 of 6.8%, we’ll compare this with the variable interest rate of 6%. That’s marginal and within the 1% range. Using one of the personal finance principle, we pay off our credit cards first since interest rates are guaranteed. Since the 6% cost savings is guaranteed based on the variable interest rates until who knows when, the ASX 200 market returns are NOT guaranteed. Based on our risk assessment, we will retain the funds in the mortgage offset account to reduce our total interest payables, at least until when the interest rates become more manageable.
