Can you have an offset for fixed IO ?

Discussion in 'Loans & Mortgage Brokers' started by Anthony Brew, 20th Sep, 2017.

Join Australia's most dynamic and respected property investment community
  1. Anthony Brew

    Anthony Brew Well-Known Member

    Joined:
    18th Feb, 2017
    Posts:
    1,176
    Location:
    Australia
    I know that
    - an offset is available for variable (both IO and P&I).
    - an offset is not available for fixed P&I.

    What about fixed IO ?
     
  2. Peter_Tersteeg

    Peter_Tersteeg Mortgage Broker Business Member

    Joined:
    18th Jun, 2015
    Posts:
    8,130
    Location:
    03 9877 3000
    There are a few exceptions, but almost all lenders do not allow an offset account against a fixed loan regardless of the repayment type.

    I/O or P&I is irrelevant.

    For those that do, most of them only use a percentage of the money to calculate the offset amount. For example the CBA gives you a credit for 1.5% of the interest based on the funds in the offset account. Kind of pointless given the rates are over 4%.

    The best way to handle this is to split the loan into the maximum amount you'd offset during the fixed time period as variable, and the rest fixed. This gives you the best of both.
     
    Anthony Brew and Cadbury99 like this.
  3. Toby

    Toby Well-Known Member

    Joined:
    19th Jun, 2017
    Posts:
    144
    Location:
    Melbourne
    I know from experience that ANZ fixed 1 year terms you can have an offset (P&I) - unsure if it applies to their IO facilities.
     
  4. Colin Rice

    Colin Rice Mortgage Broker Business Member

    Joined:
    9th Jul, 2015
    Posts:
    3,183
    Location:
    Perth
    Do this ^^^^^

    Bankwest have a 40% "partial offset" and Westpac allow 30k/annum extra repayments with redraw available as another possible option to consider.
     
  5. Peter_Tersteeg

    Peter_Tersteeg Mortgage Broker Business Member

    Joined:
    18th Jun, 2015
    Posts:
    8,130
    Location:
    03 9877 3000
    Yes, ANZ allow offset accounts for 1 year fixed rate loans, regardless of the repayment type.

    Given the high rates they're charging and the very short fixed period, I'm not sure it's a very useful deal though.
     
  6. Jamie Moore

    Jamie Moore MORTGAGE BROKER - AUSTRALIA WIDE Business Member

    Joined:
    18th Jun, 2015
    Posts:
    3,977
    Location:
    Canberra, Brisbane and Sunshine Coast
    Adelaide Bank is usually the first that comes to mind when it comes to fixed with an offset.

    Having said that - what Pete has outlined usually works out best. You get some flexibility coupled with a degree of certainty.

    Cheers

    Jamie
     
    Terry_w likes this.
  7. Anthony Brew

    Anthony Brew Well-Known Member

    Joined:
    18th Feb, 2017
    Posts:
    1,176
    Location:
    Australia
    Thanks all.
     
  8. Anthony Brew

    Anthony Brew Well-Known Member

    Joined:
    18th Feb, 2017
    Posts:
    1,176
    Location:
    Australia
    By the way, does anyone know the reason why they don't allow an offset with fixed loans?
     
  9. Eric Wu

    Eric Wu Well-Known Member Business Member

    Joined:
    8th Oct, 2016
    Posts:
    1,603
    Location:
    Australia
    apart from Adelaide Bank, AuWide also offer Fixed rate with offset account, but these 2 are the not the first line of lender choice, also depending on what you after and the reason why. :)
     
  10. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

    Joined:
    14th Jun, 2015
    Posts:
    10,599
    Location:
    Gold Coast (Australia Wide)
    Because the lender has soet of on sold the cashflow of the loan at their wholesale rate and marked it up to sell to you.

    Most fixed loans have strict extra repayment limits without penalties.

    A full offset would allow that extra repayment or saving repayment which would cost a bunch of money to the lender

    Ta
    Rolf
     
    Dean Collins likes this.
  11. tobe

    tobe Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    1,814
    Location:
    Melbourne
    I noticed on their last advertised special fixed rate it precluded offset, so that makes things more confusing.
     
  12. Eric Wu

    Eric Wu Well-Known Member Business Member

    Joined:
    8th Oct, 2016
    Posts:
    1,603
    Location:
    Australia
    you mean Auwide?
     
    tobe likes this.
  13. Anthony Brew

    Anthony Brew Well-Known Member

    Joined:
    18th Feb, 2017
    Posts:
    1,176
    Location:
    Australia
    Ahhhh yea didn't think about banks borrowing the money that they lend out. Makes sense - thanks Rolf.
     
  14. Dean Collins

    Dean Collins Well-Known Member

    Joined:
    21st Feb, 2016
    Posts:
    982
    Location:
    New York
    Why not do a split loan, eg fix 90% and have variable 10%

    Then have an offset on the variable.

    You are unlikely to save more cash that 10% on a $1m property etc.....if you have more than pay down the fixed portion to the max free limits (eg St George and Westpac allowed us to pay down our fixed loans to the max of $10pa).
     
    Anthony Brew likes this.
  15. WattleIdo

    WattleIdo midas touch

    Joined:
    18th Jun, 2015
    Posts:
    3,429
    Location:
    Riverina NSW
    I have a fixed IO with offset at TMBank.
     
  16. Corey Batt

    Corey Batt Well-Known Member

    Joined:
    14th Jun, 2015
    Posts:
    2,091
    Location:
    Adelaide, SA
    This is the common work around for most lenders - balancing fixed vs variable so you can still have a good blended option whilst also hedging the current fixed rates whilst having exposure to variable should rates go the other way.

    I can't think of any lender worth using that charges anything more/penalises you for doing this so it's a generally a good fit.
     
  17. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

    Joined:
    18th Jun, 2015
    Posts:
    23,319
    Location:
    Sydney
    A fixed rate loan has a fixed amount of interest over its period. A offset changes that.
    Some banks allow no extra repayts and others cap it. An offset would bypass these limits