Basic offset account question with variable IO

Horrible - An IO loan with all the cashflow hassles of a P&I loan. So if you repay an extra $10K the offset balance will change by the$10K and also the accrued interest benefit over time ? If so maybe not so bad. eg $10K becomes $10,300 after a month, $10,600 after two months etc

Is that how it works ?

 

yes correct. So each month I add that 'interest saved' to the 'offset' balance and grow it that way. Interest saved gets slighter bigger each month.
It is a bit of hassle, but makes me check my balance every month. Small wins

 

My understanding Peter is that if Pepper is not a deposit taking institution the offset also isn't covered by the governments 250K deposit guarantee. Is this correct?

 

@Possumcreek I believe you're correct.

 

Yes that is a risk too. Right now because they are the higher interest rate loan I have (IO only) compared to my other loan (variable PI) with a Big 4 - I've kept offset funds with Pepper...for now -though I do wonder if its worth the risk

 

I wouldn't be too concerned about Pepper not having access to the $250k government guarantee. Pepper has been well established and well funded for longer than I can remember. They're posting solid profits.

There's a negligible chance that depositors would need the $250k guarantee. I'd be more concerned about how their offset account operates.

 

Out of curiosity, why did you ask that Terry?

 

Because the op's description sounded just like the way one of St G's offset products work

 

Why is that needed if the Offset is 100% against the loan?

I've seen the interest rate from Peppers can be quite confusing, 4.92% for the P&I and also I/O?

 

There might be tax implications in the way you use their 'offset' account and the funds in it.

There's also a practical difference between offset and redraw. Lenders can easily cancel redraw at their discretion, they can't do this with a true offset account. Imagine if you had funds set aside for a future purpose and the lender decided you're a high risk and they're going to cancel your redraw and reduce the loan.

As for Peppers rates, they are indeed confusing. Rates are based on credit profile, loan purpose and LVR. There's several tables of rates and it does my head in as well.