Offset account & Serviceability

I'm interested how the banks view offset accounts and how they effect serviceability calculations.
Say Joe Citizen has their PPOR with an IO loan of 500k and Offset of 200K.
Will they calculate serviceability as the same as if they has a IO of 300K?

 

Not a broker but I'd say they'd assess the whole loan. They don't know if you're going to withdraw the whole lot tomorrow

 

They assess the whole loan - offset is not taken into consideration at all.

It's fairly logical. They assess debts on their limits, else the client can get approved and that night blow it all at the casino and have a portfolio they can no longer afford.

 

@D.T. is correct, they look at total loan.

 

Great, gives me something to think about.

 

On the same line of thought, performing an equity release on a property. How do the banks view this. Say you want to park the money for future deposit, so new IO w/ offset and not commit it as yet.

 

ORRRRR Double up and pay off your mortgage?

 

As already mentioned, they'll look at the whole loan. Money in an offset account is considered money you might withdraw at a moment's notice and go on a spending spree or expensive cruise.

 

Blasphemer!!!! No one pays out deductible debt!

 

THey will look at the total debt.

 

All loans are assessed based on the limit of the loan. Cash in offset or redraw has no bearing, other than that it can be used as a deposit. Serviceability isn't affected by the amount of cash you've got.

 

Thanks for all your comments. I have a better understanding of how the world works now.
Cheers.

 

Just to add, credit cards are also assessed in the same way. That is, they look at your limit not your balance. So if your balance is only 1k but your limit is 20k they will take assess the 20k.

 

Interestingly, say loan is $1m, offset balance is $800K, if you ask your existing lender for a re-price (because landscape has become more competitive than 3 years ago) the lender will take the offset balance into consideration and argue that they only earn interest on $200K and will price you accordingly. They are unlikely to try to bring to the table an offer that is competitive for a $1m loan. Until you step forward and walk away. By then often it's too late for the lender to keep you.

 

To get around the redraw issue do you simply request your bank drop the limit to match the balance? If so how hard is this? Surely they don't need an application or to assess income on a lower amount.

 

That's fairly easy with most lenders.

 

Yes you could, but then you won't have access to the funds anymore (naturally!) and to reinstate it would be a new application. There should not be a reassessment to decrease a loan limit.