Loan Tip: What happens to Offset Money with Loan Refinances?

Basically – nothing happens to offset money when refinancing.

An offset account is a savings account that is linked to the loan, but it is not part of the loan.

When the loan that the offset is linked to is refinanced the cash in the offset remains in that offset account – which now becomes just a savings account.


Example

Bob has a $500,000 loan with NAB and $300,000 in an offset account linked to this loan.

Bob refinances the loan to ANZ. After waiting 8 months for the approval the loan settles with ANZ and the NAB is closed.

The $300,000 is still at the NAB in the same account, but it is now not offsetting anything.

Bob will need to transfer this money to an ANZ offset account if he wants to keep offsetting the same loan.

 

Hi Terry,

Thank you in advance.

What happens if the loan involved is Investment loan IO $150k with offset having same amount as parked funds until used for investment purpose.

When the $150k loan is refinanced to another institution on IO loan, there is parked $150k in offset of current loan, which is not used yet for investments and would need to be transferred to the linked offset of the new loan.

Could this manually transfer of $150k from one offset to another cause any issues with interest deductions if and when the $150k are used to buying income producing assets?

 

If you are talking about borrowing and parking in an offset account and then refinancing before using it then you would potentially be in trouble.

Once refinanced you should pay into the loan and redraw before using it. otherwise the interest may not be deducitble.

 

So better of using the parked funds for investment purpose before the loan is refinanced so that there is a trail where the funds were used and therefore it’s interest deductions post refinance to remain continued as normal?

 

you could reset the loan after refinancing

 

Yes the new loan will be reset/back to 30 years IO once refinanced.

It’s more about the parked funds. Could they moved manually to the linked offset or better of using them before refinance if it’s being reset to 30 years.

 

you misunderstand my comment.

Pay the loan back and redraw again before investing

 

Thanks Terry