Refianance question & what happens to cash in the offset

Let's take this scenario. A person has $100k IO loan and $100k sitting in an offset account. They also have a few other saving accounts with the same bank. Now the IO period is finished and they have to now pay P&I. They decide that they want to refinance with another financial institution so they can pay IO, which they have found a couple of them that will do it for 5 years.

Is 5 years the max time for an IO refinance these days?

What exactly happens in the refinance if the person wants to keep the $100k cash sitting in the offset? Do they need to transfer out the $100k prior to the old loan getting discharged?

 

Yes 5 years generally the max

An offset is a savings account and doesn't get moved with the loan refinance. You must move it across yourself

 

Good idea to ask your lender this one (re offset).

I’ve seen some withhold it at and calculate it as if it’s the net loan at settlement (as if the loan balance is 0 in your example). In these cases, the money automatically moves over to your surplus account. Most will just treat it as separate transaction account and you’ll need to move the offset money over yourself.

 

Terry is right, but there are some potential traps with some lenders.

If the lender is a deposit taking institution (banks), then the offset account just becomes a regular savings account. No big deal, it's there to do with whatever you like.

The online lenders and mortgage managers usually don't have separate accounts because they can't actually set-up savings accounts. They have a 'redraw offset'. In this case, the new lender is probably going to only pay them the net balance of what's owing and the new lender will arrange for surplus funds from the loan to be disbursed to you.

How this is handled could depend on the old and new lender. It could potentially create some serious tax and other issues depending on the circumstances.

 

Yes the Clayton's offsets are really disguised redraw facilities so there are no separate savings accounts with these. Loans.com.au for example

 

Thanks for all the replies. Current lender with offset is Westpac. So far looking at CUA and HSBC.

 

Separate savings account you will need to manually deal with the cash in it

 

Thanks.

Does anyone here know why a P&I loan with Westpac would go up say $200/month once you have cancelled your $395/year professional package with them? When the amount in the offset account and the loan always is nearly equal in the amount throughout the year? Can't seem to get an answer from them. First month of the IO loan finising and becoming ao P&I we were given a letter with a set amount. Then after deciding there's no benefit in having a $395/year professional package anymore because our yearly interest is about $100/year we cancelled it. Then next month they issued a new letter with our P&I amount being up $200/month.

 

Loan amount outstanding on Rocket Investment Loan is $125k. Amount in offset is a few hundred dollars less than this.

 

The P&I minimum repayment is based on the rate. Even if the loan is fully offset the calculation gives a different result. By canceling the package the rate and thus the repayment changes.

 

@money, looks like there was a benefit for paying the package fee .

 

Does that mean the extra $200/month being charged is fully just the Principle amount meaning the loan will reduce quicker, or they are actually charging more interest to us also even if everything is fully meant to be offset due to the amounts in the offset & loan?

 

It seems like the P&I will be exactly the same every month from now on from my understanding. Does that seem correct? If that's the case, what's the point of having any money sitting in the offset if it won't offset anything anymore and the P&I will be exactly the same from now on?

 

Ok thanks for the clarification

 

Generally yes. You’ll need to transfer the cash from your old account to the new offset.

Cheers

Jamie