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No offset account - how to save it??

Discussion in 'Property Finance' started by ziwnoyeb, 26th Aug, 2015.

  1. ziwnoyeb

    ziwnoyeb Member

    Joined:
    19th Jun, 2015
    Posts:
    18
    Location:
    NSW
    Hi

    I have a PPOR turn IP property loan with bank1 - no offset account but has redraw facility -> Mistake 1
    While it is my PPOR I have also paid down my loan with bank1 with extra repayments -> Mistake 2


    So I learned about benefits of offset account and at about 3 months ago, I decided to "refinance" this loan to Bank2. To "save" this loan from future "damage", I talked to broker, setup of refinance loan in bank2:
    Loan1: Outstanding amount
    Loan2: Extra repayment amount

    Paperwork for moving loan to bank2 all completed .. and ringed bank1 to notify them that I am switching/moving this loan to bank2. Bank1 cancelled the "automatic weekly repayment", booked settlement date etc for the refinance..

    Come settlement date1, nothing happened. Called up my broker, he found out the reason - something to do with bank2's incompetent outsourced mortgage agent/settlement agents, then went on to arrange settlement date2, settlement date2 comes and go nothing happened??!

    It's 3mths now..and now after another few phone calls.. got settlement date3...

    While waiting for this refinance to happen.. I am thinking:

    Since I have Extra repayment, bank1 does not mind me not paying anymore.. it just deduct the amount from the "extra repayment". Meanwhile for the 3 mths where this hooha is going on.. bank1 charges the monthly interest as usual , for 3 times now.. so my outstanding amount actually increase...

    so I am wondering, maybe I should stop this refinance and fix this offset problem this way, since bank2 not really interested to take my business after 2 failed settlement??

    Reason is I have this extra repayment which bank1 is happy to deduct from, I can have a repayment holiday with bank1 till my extra repayments depleted, outstanding amount increase back to where it is supposed to be if I have an offset amount.

    Money saved from repayment holiday to be used for next IP or PPOR etc...
    The only problem i see is time, maybe i it will take few years to deplete the extra repayments...

    is this workable?? any tax implications this way??

    Pls advice.. thanks!!!
     
  2. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

    Joined:
    18th Jun, 2015
    Posts:
    8,979
    Location:
    Sydney
    You are essentially capitalising the interest. ATO may see it as a scheme and deny the deduction later.

    Another potential problem is you are technically in breach of the loan agreement by not paying so another lender may have issues if you try to refinance with them in the next 6 months.
     
  3. ziwnoyeb

    ziwnoyeb Member

    Joined:
    19th Jun, 2015
    Posts:
    18
    Location:
    NSW
    @Terry_w ,
    ok... thanks terry.. sounds serious... now waiting for settlement date3 to happen.. hope it will happen.. i am actually quite angry with bank2 now for causing this problem...

    I have ringed up bank1 and asked about the repayment question.. they said since I have extra repayment, they are ok with me not doing the weekly payment now..

    Ok and thanks I have learned another new thing today: "capitalising the interest" reading up now..

    thanks!!
     
  4. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

    Joined:
    18th Jun, 2015
    Posts:
    8,979
    Location:
    Sydney