Bank wants to advance funds for IP deposit to offset account

Discussion in 'Loans & Mortgage Brokers' started by ctu1890, 2nd May, 2017.

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  1. ctu1890

    ctu1890 Member

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    Hi all,

    My bank wants to advance borrowed funds to my offset (says they cant pay vendor direct)

    In light of all the posts re mixed funds in offsets, I have some concerns.


    Plan is to have a 105% IP loan structure as follows:

    -Equity loan for deposit and purchase costs 20-25% secured against PPOR (which is fully owned). Variable rate with full offset.

    -Remaining 80% as a 3 year fixed rate loan (so no offset), secured against new property.


    Now the offset account against the equity loan will also be used for all our wages and personal transactions as well as paying any IP related expenses post settlement. So it'll be our one in all transaction account.

    In light of what I have read on this forum so far, my thinking is as follows:

    1- Allow the the bank to advance the borrowed funds into a new/clean offset account.

    2- I pay the deposit, and put any surplus back onto loan redraw, thus again clearing the offset.

    3- I subsequently start using the offset for the various mixed reasons mentioned above.


    The question:

    Will interest on the 105% borrowings remain deductible in this instance?

    Many thanks in advance for any advice given.
     
  2. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker Business Member

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    See my tax tip 1 where I have answered this. The answer is 'probably'.

    Tax Tip 1: Parking borrowed money in an offset account https://propertychat.com.au/communi...ing-borrowed-money-in-an-offset-account.1313/

    But to make things safer I would assume that the bank will stuff it up, so I would remove all cash you have from the existing offset until after settlement, because this is where they will probably put the money - especially if it is NAB.
     
  3. Anthony Brew

    Anthony Brew Well-Known Member

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    Or as he said:
    1- Allow the the bank to advance the borrowed funds into a new/clean offset account.

    I think that should serve the same purpose without the extra interest payable on hundreds of thousands of dollars removed from the current offset for the month/s that they are searching for the new property, right?
     
  4. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker Business Member

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    My point is that banks often do not follow instructions. If they put it in the existing offset the loan will be contaminated and deductibility ruined. And I have seen this happen.
     
  5. Perthguy

    Perthguy Well-Known Member

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    What does your conveyancer say? Can the bank transfer the funds to the conveyancer's trust account and the conveyancer pay the deposit?
     
  6. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker Business Member

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    nothing to do with the conveyancer. But if the bank could transfer to them they could transfer to the final destination as well;.
     
  7. Perthguy

    Perthguy Well-Known Member

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    True. Could @ctu1890 organise a bank cheque instead?

    For my last purchase the bank told me I could only transfer funds to my offset account, not to the conveyancer's trust account and not to the vendor. So I ordered a bank cheque made out to the conveyancer's trust account and had the funds deposited prior to settlement.

    Perhaps @ctu1890 could request a bank cheque for the deposit?
     
  8. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker Business Member

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    My experience is that some banks insist on paying only to savings accounts with the same bank, but if you can manage to get a bank cheque that would be good.
     
  9. ctu1890

    ctu1890 Member

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    Hey, thanks for all the replies.

    I have since made some calls. It appears one of the banks (yes NAB) insists on advancing funds to my offset or savings account. The guy at NAB also made some mention that I might be able to go into a branch,fill out forms to organise a direct deposit for a fee, but he couldn't give me much detail.

    Another lender (ME) has advised me they can disburse funds directly to the vendor as long as my broker fills out the online disbursement form accordingly - may just take a couple of days. They can email the receipt straight away. This should hopefully do the trick. They also allow multiple offsets, unlike NAB, so could be a go.

    I am tempted to also not even open an offset account at all until all is settled...just in case...
     
  10. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    When we set up an equity release loan with the NAB, we often set up a new offset account against the equity release loan. Nothing else goes there, just the funds from the equity release. It tends to avoid this very problem.
     
  11. Corey Batt

    Corey Batt Well-Known Member

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    This. Banks muck distribution of funds to clients all the time, so if you give them a nice new account to distribute to it makes it easier. Worst case if you're worried about the linkage of use of funds, cycle it through the loan account so its 'reborrowed' and then transfer out to the solicitor/conveyancer etc.

    Ensure if you do cycle any funds that you know how the bank treats this - you don't want to transfer the full balance and accidently close the loan account.
     
  12. Anthony Brew

    Anthony Brew Well-Known Member

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    Ah right.

    You don't think that if it goes in mixed and then taken right out into separate offset 1-2 days later that it would not be obvious to the ATO that it was just the bank not following instructions?
     
  13. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker Business Member

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    If u urinate in your coffee and take it out immediately it would be obvious that is was a mistske but would you drink it?