Offset vs redraw urgent advice required

Hi all

I bought my PPOR last year and I wasn't educated at the time so I got set up with an Aussie Select Basic Variable Loan with a redraw option. Now learning more about property investment and everything that goes with it I have been inquiring about switching to an off set account with Aussie. I rang another Aussie Mortgage broker today because I am not happy with my current one and all of a sudden Aussie don't offer an offset account anymore. Even know a month ago they did.

Adding to my frustration he had no concept of the term multiple purpose loan. He argued with me saying an Offset account and a Redraw facility is the same thing. I pointed out to him that if I pay extra into my current loan, then later redraw and rent my home out as an investment property then I cannot claim the interest I pay on the loan as a tax deduction. Reason being is it will become a multiple purpose loan. He said he had never heard of that term and went on about redraw being the same as off set. Am I going insane or what?

 

No you’re right. But listening to these gooses will drive you insane.

 

Thanks that's good to know i'm not crazy! Only reason I was talking to them was to try avoid paying Lenders Mortgage Insurance, but they don't have an offset option anymore. So now I have to weigh up if its worth refinancing to get an offset account. I think it probably is, makes much more sense to me.

In terms of being able to get lending in the future having an offset with a large amount in it to use as a deposit would be much better then not being able to redraw and relying on equity alone.

 

Offset is your own money. Redraw is the bank’s money which can be given or taken away at their choosing.

 

Exactly, you have the total control of offset cash whereas redraw the financier has total control and can change rules as they like!

 

So you guys recommend refining? Its seems like a no brainer to me. LMI is around 900 the aussie guy said. Is that correct?

 

Not to mention the tax and other forward planning considerations...


@Bean27 if a broker doesn't appreciate the differences between an offset account and a redraw facility, you shouldn't be engaging them for investment lending at all. They'll only cost you a lot of money in the long run. Actually it shouldn't just be investors that avoid them, this sort of understanding of lending should be fundamental to any broker IMO.

I'm not an Aussie broker so I don't really know that much about the Aussie loan product, but most 'white label' products such as this never had an offset account in the first place.

 

Yeah I was just trying to avoid paying LMI if I could. What do you mean by “white label”? Its frustrating having to refinance but looks like ill be better in the long run.

 

A white label product is a product or service produced by one company that other companies rebrand to make it appear as if they had made it. Wikipedia

 

At this point I can't say that refinancing is an automatic recommendation. Not having an offset account will cost you, but if LMI is involved, that may cost you more. Other solutions may be available and I don't think LMI is going to be a mere $900. It usually runs into the thousands (eg $3k - $12k+ depending on the parameters).

I would recommend getting an opinion from one of the brokers on this forum. It is possible to work without an offset account. Often if people have less than about $5k - $10k in an offset account the fees may outweigh the benefit.

"White label" is where a company takes money from another lender, manages the loan internally and puts their own branding on it. Most broker head groups (Aggregators) do it, including my own. Given Aussie is owned by the CBA I suspect the "Aussie loan" is really CBA money, probably through other parties.

Many brokers like this arrangement because you no longer deal with the bank directly, it takes you out of the banks marketing pool. These loans rarely have a real offset account and there's plenty of other reasons why I don't think they're a good fit for many borrowers despite usually having competitive rates.

 

Lots too consider thanks guys I think I may chat with Terry and see what my best option is

 

Sorry if I hijack this thread
I'm just trying to get a grip on my situation that sounds similar.
If I have a variable IP loan with an offset.
Loan $305 000
Offset $180 000
Repayments $1529 a month every month.

Every month my loan account has a credit added to it as a result of the money in my offset.

My Question

A) Is it better to leave as an advanced payment against the loan
B) Redraw the additional funds and put in the offset account

Thanks in advance

 

thats a massive off set congrats on building that up!

 

Thanks for the replies

Lender is Bankwest
Yes it is P&I
IP is an old miners cottage at Stockton.
Plan is to rent it out until retirement and then do a reno on it.
The property has front street access and a lane way at the back.
Depending on circumstances I might knock down the existing garage backing onto lane way and build one with a flat above it. Then rent either the flat or house out while living there.

 

No Rent Vesting to save money
Have a car loan (car allowance) but claim that through tax
Income about $170K including car allowance
Lost everything in a separation 8 years ago.
Just trying to recover

Was keeping money in offset in case I decide to buy another IP or PPOR.

 

Thanks Rolf

 

I'm not entirely sure what you are saying here but a loan can change in nature for tax purposes. A deductible IP loan can become a non-deductible PPOR loan, and vice versa. But I'd be getting expert advice as things may be more complicated in practice.