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Redraw Question

Discussion in 'Property Finance' started by albanga, 18th Sep, 2016.

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  1. albanga

    albanga Well-Known Member

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    I know each lender has their own rules around the use of redraw (minimum and maximum amounts, fees.etc) and I also know all the benefits of using an offset account.

    One or the main benefits of an offset being "it's your money" whereas a redraw is the banks money. This is often used in conjunction when talking about things such as losing an income (job loss or injury) and how you will survive.

    What I have failed to understand though is that in my experience it is as easy as an online transfer to access redraw funds. So why would someone not be able to just redraw say $10,000 in a situation like this?

    Given the lender you use has a high maximum and no fees for example and ofcourse its your PPOR so not talking about loan contamination.
     
  2. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    There is no reason why this would not be the case.
     
  3. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    You can do this but issues then arise if/when the property becomes an IP. Not many people stay in one PPOR their whole lives anymore.
     
  4. Corey Batt

    Corey Batt Finance Strategist Business Plus Member

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    Two main very important issues in redraws vs offset:
    • Tax issues. redrawing from a loan account can change deductibility of loans now/in future.
    • Redraw access can be cancelled by a lender a lot easier than them siezing your cash within a bank account (offset)
    Nil benefits, whilst there being some very real potential issues - I know what I would choose.
     
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  5. albanga

    albanga Well-Known Member

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    Thanks for all the reply team. I understand all the taxation issues so no problem there.

    I was more meaning for a standard non property investor (most home owners in Australia).
     
  6. Redom

    Redom Mortgage Broker Business Member

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    There are some of the cheaper online lender loan products that do make this an interesting question. Many don't have an offset (but a redraw), and offer cheaper rates/fees.

    Corey's summed up the financing benefits of an offset vs redraw. If going to these type of lenders, these benefits just need to be weighed up against the pricing cost of having an offset.

    Usually, the pricing benefit/fees savings can be worth looking into for those who don't ever plan on purchasing investments and simply want to knock of their home loan as fast as possible. They are less likely to benefit from the tax & funds flexibility of an offset.
     
  7. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    Standard Term loan Redraw = In most cases , your money becomes the banks money

    Discrete Offset from a lender with a banking licence = In most cases, your money stays your money

    Loc redraw. In most cases, your money becomes the banks money, AND in most cases, the WHOLE loan is repayable on demand within 30to 90 days.


    All monies clauses excluded, in a scenario where a lender or borrower runs into trouble, its obvious which has lower risk

    ta

    rolf
     
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  8. Colin Rice

    Colin Rice Mortgage Broker Australia Wide Business Member

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    The difference between an offset and redraw is most often a subtle mindset shift from traditional thinking of "all debt is bad and needs to be paid down" to "how can I be in control of my money and become the bank".

    They both have the same net effect but offset is so much more flexible as outlined above by the resident specialists.
     
  9. hash_investor

    hash_investor Well-Known Member

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    It is more about ATO than bank. ATO treats withdraw differently and majority does it for tax purposes only.

    But I will believe that offset is my money and loan account is bank's money. The reason is that withdrawals have certain restriction, like X number of times per month, x amount of money only, no ATM card blah blah... Now compare that with an offset.
     
  10. neK

    neK Well-Known Member

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    So what happens in the case of the bank collapsing? A big enough fear that the government had to guarantee up to a certain amount.

    Eg. I have a $500k loan with $400k in offset in the event of a collapse, would I lose my $400k and still owe them $500k, or would I owe them $100k

    Conversely, if I have a $500k loan, had paid down $400k, therefore owing $100k, but had 400k in available redraw, in the event of a collapse, would I owe them only $100k
     
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  11. York

    York Finance Broker Business Member

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    The Federal Government guarantees up to 250k per account holder per institution for deposited funds for institutions who are approved members of the Guarantee Scheme.
    As far as the loan goes, it would most probably be sold to another lender and your obligations would continue with that lender at the balance they were when sold.
     
  12. neK

    neK Well-Known Member

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    @York So does that mean the money in the offset account is lost and i still owe "a" bank $500,000?
     
  13. dabbler

    dabbler Well-Known Member

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    If no guarantee, then likely you will be in line to try and get your 400 back but you still owe for the 500k loan.
     
  14. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    If the account is with a bank covered by the govt guarantee then the govt will guarantee the amount - I think - up to $250k
     
  15. neK

    neK Well-Known Member

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    That's what i figured as well.... dirty banks. LOL
     
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  16. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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  17. York

    York Finance Broker Business Member

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    If you disregard the guarantee, then pretty much yes.
     
  18. dabbler

    dabbler Well-Known Member

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    It has been discussed before, much of the talk was how people would spread any cash to various offsets that have the guarantee and not go above the 250, the banks would also have to be completely different entities most likely.

    I wonder how everyone would go if someone got into a banks database and corrupted it beyond repair, better hope you have statements & not just the downloaded ones they all push for now , however no need to worry about them working out how much your debit is, they will have that stored & on paper somewhere :)

    Imagine the wait times to fix this.