Capitalisation of Interest on home loan

Hello everyone, I needed some general advice regarding clarity on offset account statement. My sister has a home loan (her outstanding loan balance is about $150K) for her PPOR. She told me that she has about $155K sitting in the mortgage offset account, and basically not paying any interest on the loan from last 6ish months. Today, she showed me her bank statement, which showed all the regular monthly repayments, but for the interest component, the description was used "Capitalisation" $0.00

She has enough amount in her offset account so she isn't paying any interest, but the question is, is her bank capitalising the interest incorrectly? Meaning, they're temporarily pausing the interest and then they will add the interest back in the loan balance later on? She had this question. I don't know much about all these so thought to ask question here to the experts

 

If there is no interest then nothing to capitalise. It is probably some misguided automatic message that gets added to statements where interest isn't paid - even if there is none.

As an aside I had a client tell me that his bank was charging him $230 in interest per month on a fully offset loan. I said this could not be the case and he insisted it was. I had a look at hte statement and there was no interest being charged at all, just principal as it was a PI loan.

 

If interest was capitalised, the loan amount would increase.

 

I hope you charged them a 6 minute unit for that one!

 

Thank you Terry and everyone else. So, it seems it's only the terminology used by the bank on the 'Statement'. It's not an actual capitalisation of the interest since the balance of the loan is decreasing (not increasing) with the repayments of principal amount.

 

Correct, since the loan is fully offset, no interest charges. Therefore the repayments are all going towards the principal repayments - Like you mentioned, I think it is just that particular bank's terminology.

 

And he was claiming a interest deduction for the $2760 pa he paid. ? Many confuse the interest charged v what they pay. The interest DEBIT is what can be deductible, not the payment (CREDIT)

 

It was the first year, but I am sure he would have claimed it if I hadn't said anything.