Prepaying Interest with an offset account

Discussion in 'Loans & Mortgage Brokers' started by eask, 5th May, 2019.

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  1. eask

    eask Member

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    I can't seem to find an answer to this situation.
    I am about to pre-pay my home loan interest for financial year 2019-2020.
    However, the account is an 100% offset account.
    So my questions are:
    1. Say the interest rate rises in during that year, will I need to pay the remaining interest rise?
    2. What will happen if the offset account is full over 2019-2020?
     
  2. eask

    eask Member

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    Just to clarify
    2. What will happen if the offset account is full over 2019-2020?
    - In other words, if I prepaid $12k in 2018-2019, but my offset is full, so there is no need for me to pay interest in 2019-2020, what then happens to the $12k?
     
  3. tobe

    tobe Well-Known Member

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    are you ‘pre paying’ next years interest so you can bring forward the tax deduction?

    It doesn’t work that way. If you want to do that you need to have the bank invoice you for next years interest by way of a ‘fixed interest in advance’ home loan. You cant just pre pay interest for next year and claim it on your tax as far as I’m aware.
     
    eask likes this.
  4. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    You need to fix the loan to prepay so no offset
     
    wylie likes this.
  5. MWI

    MWI Well-Known Member

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    Agree with the other comments, paying into offset account spare cash is not paying an interest in advance loan! Just be aware if you do prepay your loan terms are more likely to change by the financier.
    I have few loans which I prepaid fixed IO in advance say for 2 or 3 years (received great rate at 3.89%, so each year I do it) but have received a letter from the provider that after that period the loans will revert to P&I from IO prior loan terms. Most likely I will try to negotiate or refinance elsewhere....
    If you prepay for a year only, next year after you will need to decide whether you would prepay again or not, (if not - hence may have no interest to declare).
     
    eask likes this.

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