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October 30th, 2012, 06:52 PM   #1
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Which Mortgage to Pick?

We are in the process of sorting out our mortgage for our first home, and have come across two different mortgages that might be good - but we're unsure which one works out better off.
I have no idea what the equation would be to figure out which one is better, found this forum on google so hopefully you guys can help out!

Interest rate for both is 5.5% for the first 3 years.
Loan amount is $450,000
Loan term is 30 years, fixed for the first 3.

I need to know which mortgage is better for us for the first 3 years, while it is fixed.

Mortgage 1
Offers a .5% rebate on the loan ($2250) every year

Mortgage 2
Offers a 100% offset account
We will have $25,000 sitting in the offset account from day one, and it is unlikely to drop below $15,000

With $25,000 in the offset account, we are only paying interest on $425,000 - which means more principle of the loan is being paid off.

Is the offset account sufficient to make it worthwhile, or the $2250 rebate going to be better for us?
Cheers
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October 30th, 2012, 08:49 PM   #2
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Re: Which Mortgage to Pick?

The two would be just as good if your average balance was $40,909. Since it seems it will be less than that I would recommend the mortgage with the rebate.
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October 30th, 2012, 09:35 PM   #3
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Re: Which Mortgage to Pick?

Quote:
Originally Posted by laxation
Interest rate for both is 5.5% for the first 3 years.
Loan amount is $450,000
Loan term is 30 years, fixed for the first 3.

Mortgage 1
Offers a .5% rebate on the loan ($2250) every year
Mortgage 2
Offers a 100% offset account
We will have $25,000 sitting in the offset account from day one, and it is unlikely to drop below $15,000

With $25,000 in the offset account, we are only paying interest on $425,000 - which means more principle of the loan is being paid off.
Monthly payment in both cases: 2,555

IF the 2250 is looked at as an additional annual payment:
owing after 36 months : 423,633

IF the 25000 is looked at as creating a 425000 mortgage for 3 years, then added back to mortgage balance:
owing after 36 months : 426,297

Curious: can you not ask "them": what will I owe you to pay you off in 36 months?
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October 30th, 2012, 09:57 PM   #4
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Re: Which Mortgage to Pick?

Thanks very much for the replies

Denis, does your calculations mean that after 3 years we are about $3000 better off by using the Rebate Mortgage?
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October 30th, 2012, 10:25 PM   #5
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Re: Which Mortgage to Pick?

Yes (closer to 2,500): IF everything is "applied" the way I assumed...
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October 31st, 2012, 02:41 PM   #6
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Re: Which Mortgage to Pick?

When I was told about the rebate mortgage, I conveniently wasn't told that the rebate only applies for the first year.

Could someone please calculate the difference now?
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