Servicing P+I equity draws when they're not being used

Just refinanced and scored an equity draw, CBA would only do p+i, I didn't realise the principal component still needs to be serviced even when the draw is not being used. I was under the impression you pay when you use.

Is there any way around this? Maybe perhaps using the actual equity draw to pay off the principal repayments? Any ideas?

Cheers

 

Are the funds sitting in offset? If so, get the direct debit to come out of the equity funds. Your limit will slowly reduce while you're not using it so keep an eye on it to make sure you still have enough free when the time comes to use it!

 

There wouldn't be any interest payable while it's fully offset, so I don't think it would be a problem? The whole payment would be principle?

 

Thanks for the replies guys, yep just waiting for that 6 month period to come (it's newly settled).

I will also run it by my accountant.

It's just a bit hard to get my head around, the money is sitting in an offset, to make it easy, say the draw is 100k in the offset, and the repayment is 1k. If I make the repayments deducted from my offset, then it becomes 99k, but back up to 100k, is that how it works? And technically nothing's been drawn therefore no interest?

Would it be wise to say put an extra 1k in there to make it 101k, so when the payment comes, it never goes below 100k at any point?

 

Your limit will reduce with each payment - you're paying principle off with each payment which you won't be able to redraw.

 

I think this might cause problems with capitalising interest.

Would like to apportion out the principle part of my repayment from equity release to effectively make it IO but I am not sure if even doing this will cause problems. Maybe the ATO will decide that the 30% (or whatever) that I pay from the equity release is for the interest and is capitalising interest. I need to check into that further.

But in any case, according to Terry, using equity to pay the interest will require a private ruling from the ATO or else you may be up for a fine later on and have to repay the tax deducted on interest paid on the amount borrowed and used to pay for the interest part of the repayment

 

I don't think it will, because there will be no interest component - while it's fully offset, the whole payment will be principle.

You can't capitalise interest when there's no interest charge.

Not a tax guy, but logically, it should be okay. @Ross Forrester ?

 

Oh yea sorry you are right.

 

Its CBA right? Ive found that you can pay the loan down to $1 and they will stop taking repayments. Ring to make sure after you've done it.

At 6 month mark redraw back to offset and convert to IO>

 

If you keep the cash in the offset the loan will pay itself off rapidly - in about 14 years without you doing anything as all the repayments would be principal.

I would suggest looking at Marty's solution - but take care as if the minimum repayments continue it will be paid off in full in about a few days.

If you remove the funds from the offset to somewhere else you will have tax issues as well as be paying interest.

 

As above
- have clean (new) offset for repayments, will eat into amount > 6months switch to IO, import to not use/mix funds
- repay loan to $1, funds stay in redraw, switch loan to salary credit, still reduced the available redraw > 6months switch to IO

 

I don't understand this. Could you explain it a bit more clearly please?