Mortgage split questions

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Forums › Finance and wealth management › Mortgage split questions

martyyn

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#281530 23-Feb-2021 11:03

We've been to three different mortgages advisors over the last couple of years and they've all been rubbish so I'm asking the audience this time :)

We've come to the point in our lives were our incoming is greater than our outgoing. We each run our own business (which are flourishing) and we have the family home plus a rental with the mortgage split three ways.

Account 1 is our daily account. It's a revolving account and up until now it's balance has always been negative. It's now always positive and I'm trying to work out how best to use that money.

Account 2 is our tax and gst account. It's also a revolving account. The total available covers our tax obligations and is emptied each May and October. It doesn't usually take us long to get back to $0. Once it's cleared the extra goes into A1.

Account 3 is what's left our our mortgage. It's always been fixed and as interest rates have gone down we've left the monthly payment alone so we are paying much more than the minimum payment. This is now coming up for renewal.

As I see it we have the following options.

1. Stay as-is. Fix A3 for 12 months and let the rental cover the minimum payment. But this leaves $'s in A1 which I don't want.

2. Transfer A1 in part/full to A3 and fix A3. This could cut A3's interest payments significantly over the remaining life of the loan. We then forget A3 for the term and get A1 back to $0 asap. I don't know how long that would take as we've only just got to the point where we have extra money. Throwing a big chunk into an account we can't get back if we need it seems a little hasty.

3. Make A3 another revolving account. The rental will still pay into it, as will any extra from A1, but that extra money will be inconsistent. Some months it will be nothing, some months it could be a couple of thousand.

4. Merge A1 and A3, we don't need two revolving accounts effectively doing the same thing. This just means a huge -ve which is something to get our heads around.

This is the first time in 20 years we've had extra money. It feels weird moving around +'s rather than how to cover the -'s but I don't want to waste this opportunity. We have modest desires and have only recently taken our first family holiday around NZ. We have no need to upgrade anything, we're happy with what we have but we would like to repalce our kitchen and bathroom in the next 12 months and I'd like to do that without going to the bank if we can.

So, anyone have any thoughts or any new options we haven't considered ?

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#2661667 23-Feb-2021 11:08

Option 4. Discuss your financial goals relative to the mortgage with your bank and get them to give you their options, as input to your decision-making process.

duckDecoy

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#2661668 23-Feb-2021 11:10

We had an offset mortgage. The net money across all accounts, including the negative mortgage account, was counted towards the mortgage interest. So if you have a 100k mortgage and 25k in a savings account you would effectively be paying as if you had a mortgage of 75k.

That could give you what you're after, you are getting rid of the 'dead' money that is in A1 (dead because the interest is pathetic) by sort of putting it towards your mortgage, but it's still actually there if you ever need to use it.

gbwelly

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#2661725 23-Feb-2021 11:47

martyyn:

4. Merge A1 and A3, we don't need two revolving accounts effectively doing the same thing. This just means a huge -ve which is something to get our heads around.

I may get schooled by another poster, as I've never been self employed, however this seems like the sensible thing to do...

Do this and ignore the negative balance. You can put A2 in there as well and just pull it back out when the tax man wants it. The more time money spends in that account the lower the interest.

esawers

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#2661727 23-Feb-2021 11:50

Some banks allow you to pay off 5% on your mortgage each year with no penaltys.

You could build up A1 and then make a lump sum payment on your mortgage if you haven't needed the money.

blackjack17

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#2661728 23-Feb-2021 11:52

Open an investment portfolio? Would be able to make more than what the mortgage is losing.

Any leftover money goes there and if something goes wrong with one of the businesses you would at least have the option of selling up rather than have to redraw on the mortgage.

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jonathan18

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#2661741 23-Feb-2021 12:26

We’re in a very similar boat to the OP, and have debated what to do with what was previously a negative revolving credit balance being increasingly in the positive. We’ve elected to do a combination of things already mentioned on this thread, ie

refixed our mortgage with a reduced term to ensure minimum repayments are as close to current repayments, thereby ensuring we have that 5% buffer to let us make lump sum repayments
set up a Simplicity account, which we can divert some of that positive balance so as to (hopefully) get a better return (with that money split between different funds).

This way we have two quite different options to hand, which allows us to manage our appetite for risk vs certainty.

MadEngineer

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#2661749 23-Feb-2021 12:39

You’ll need floating with your incoming going directly against your mortgage. Split to fixed

It may be different with business accounts but Westpac required us to have our main transactional account as the floating. All our outgoing is from credit card, paid automatically at the end of the month giving up to 50 days before purchases come off the floating.

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martyyn

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#2661850 23-Feb-2021 15:11

@BlinkyBilll
The bank have so far only been slightly better than the brokers/advisors. The in-branch contact person keeps changing and they've all said "yes you can do that" but once we've applied they've told us we can't.

@duckDecoy
What puts me off an offet mortgage is we have to leave the extra money in an account which isn't the offset account. If we were to make any extra payments they would be "gone" once made. A revolving allows the same freedom but the full balance allows us to dip back into it should we want to.

@esawers
We can now, but I want to use the +ve money all the time rather than waiting to make a lump sum payment every 12 months.

@blackjack17 and @jonathan18
At the moment I'd like to just simplify our accounts and maybe look in to other forms of investment in the future. It seems one step too many for us at right now.

@MadEnigneer
Yep, I think this is something else we should consider. All outgoings on a CC.

One thing I forgot to mention is I would like to keep our current level of borrowing available to us at a later date. I'd like the opportunity to use the revolving balances to upgrade the house and maybe our cars as and when we would like. I don't want to pay it all off and have to go back and apply for a new extention each time we want to do something.

I'm thinking we stick to three accounts because the separation (even if it's just in our minds) makes sense to us. A1 can be used for fun, A2 for tax and A3 just takes all of the extra. We just have to decide whether to make a lump sum payment from A1 to A3 and fix or make A3 a revolving account and just put money is as and when we have it.

This whole process has been really interesting for us. We both come from families who had little to no money. We both got through university in the 80s/90s with no financial support but ended up with significant student loans. Then we had kids and wanted one of us at home throughout so we've had to really juggle our finances for a long time.

Now we don't need to stress about finances we are still overly cautious to make sure we don't end up having to watch every penny again. Some of our friends, who have no trouble being in debt and own multiple properties, find it all rather amusing. They don't understand why we don't just buy a couple of properties and forget about it !

evnafets

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#2661874 23-Feb-2021 15:39

If you are going to fix, I would suggest fixing for only one year - giving you the option of making a lump sum payment again in 12 months - or changing to any of the other options discussed in this thread. By then you might have a better idea of what sort of rate your A1 is growing at. I locked in for 3 years, and was facing the same situation you are - a positive revolving account, and no way to effectively "use" that money on the mortgage.

I assume any amount you go into negative on A1, it will have a higher interest rate than A3 would, so bear that in mind as well.

duckDecoy

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#2661875 23-Feb-2021 15:43

martyyn:

@duckDecoy
What puts me off an offet mortgage is we have to leave the extra money in an account which isn't the offset account. If we were to make any extra payments they would be "gone" once made. A revolving allows the same freedom but the full balance allows us to dip back into it should we want to.

Not quite sure I understand, maybe I am being thick. We have a bunch of different "accounts" at BNZ, every one of them is part of the offset with one of them being the mortgage. Its called Total Money from memory.

You allocate money to whatever account you want, and its the net balance that counts towards your mortgage interest. You can if you wish push money into the mortgage account which will permanently decrease it and that money is "gone" as you mentioned above. But you don't have to do that. You could push the money into an adjacent account (stilil under the same connected Total Money umbrella) and it will be there for you to grab at a later date if you wish. The interest effects are identical in either case.

martyyn

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#2661880 23-Feb-2021 16:00

duckDecoy:

You allocate money to whatever account you want, and its the net balance that counts towards your mortgage interest. You can if you wish push money into the mortgage account which will permanently decrease it and that money is "gone" as you mentioned above. But you don't have to do that. You could push the money into an adjacent account (stilil under the same connected Total Money umbrella) and it will be there for you to grab at a later date if you wish. The interest effects are identical in either case.

Are you suggesting....

A1 for fun
A2 for tax
A3 offset mortgage
A4 for extra money

If we have money in A4, why not just put it in a revolving A3 ?

duckDecoy

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#2661884 23-Feb-2021 16:14

martyyn:

duckDecoy:

You allocate money to whatever account you want, and its the net balance that counts towards your mortgage interest. You can if you wish push money into the mortgage account which will permanently decrease it and that money is "gone" as you mentioned above. But you don't have to do that. You could push the money into an adjacent account (stilil under the same connected Total Money umbrella) and it will be there for you to grab at a later date if you wish. The interest effects are identical in either case.

Are you suggesting....

A1 for fun
A2 for tax
A3 offset mortgage
A4 for extra money

If we have money in A4, why not just put it in a revolving A3 ?

For us if you put it into A3 (the mortgage) its gone forever, the mortgage is permanently decreased by that amount, so not the same as your revolving. On reflection the Total Money concept my not work for you if you want a permanent unchanging line of credit available that you can draw down on again at any time, the A3 account would take regular monthly payments and the mortgage permanently decreases each month by that amount. But what it does do is tie A1 and A2 and A4 into the mortgage so you pay less interest and everything is easy and compartmentalised.

martyyn

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#2661897 23-Feb-2021 17:15

duckDecoy:

For us if you put it into A3 (the mortgage) its gone forever, the mortgage is permanently decreased by that amount, so not the same as your revolving. On reflection the Total Money concept my not work for you if you want a permanent unchanging line of credit available that you can draw down on again at any time, the A3 account would take regular monthly payments and the mortgage permanently decreases each month by that amount. But what it does do is tie A1 and A2 and A4 into the mortgage so you pay less interest and everything is easy and compartmentalised.

I think we're on the same page now. I think your suggestion would allow us to offset A3 and just any put extra money into A4. At the end of the term it would tell us how much we had an extra during the term which might help make a decision next year.

If we revolve A3 we just put it in but don't know how much we've actually put in without tracking the payments.

blackjack17

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#2661901 23-Feb-2021 17:35

martyyn:

duckDecoy:

You allocate money to whatever account you want, and its the net balance that counts towards your mortgage interest. You can if you wish push money into the mortgage account which will permanently decrease it and that money is "gone" as you mentioned above. But you don't have to do that. You could push the money into an adjacent account (stilil under the same connected Total Money umbrella) and it will be there for you to grab at a later date if you wish. The interest effects are identical in either case.

Are you suggesting....

A1 for fun
A2 for tax
A3 offset mortgage
A4 for extra money

If we have money in A4, why not just put it in a revolving A3 ?

I know you said you really aren't interested but if A4 was a sharesies/simplicity/milford/juno investment (non-kiwisaver) account you would be making interest while still being able to pull it out for new cars / renovations / emergencies. While you wouldn't have instant access you can generally get it out in a couple of days.

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MadEngineer

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#2661902 23-Feb-2021 17:35

martyyn:

One thing I forgot to mention is I would like to keep our current level of borrowing available to us at a later date. I'd like the opportunity to use the revolving balances to upgrade the house and maybe our cars as and when we would like. I don't want to pay it all off and have to go back and apply for a new extention each time we want to do something.

That's exactly what Westpac allows us to do. The funds of the floating are always available. It means every purchase we make, a month after it's paid on the credit card is effectively charged at the floating rate. Since we've gone positive on the floating there's no interest at all but the funds are still there eg allowing us to build a new garage. On a personal banking level there's no need to apply for loans or finance any more.

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