Slowly, but surely the truth about redraw v offsets will be explained to borrowers

Discussion in 'Property Finance' started by Rolf Latham, 4th Dec, 2018.

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  1. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    I note with interest that even CBA has now finally made an admission of the redraw risk outside of their mortgage docs, and brought it into the application and decisions making process.

    Risks
    • Lender may charge fees for each redraw
    • Each redraw may be subject to the lender's discretion

    Oohahh :)

    I wonder how long it will take for non banks to be finally forced to do the same ?

    Further I wonder how long non banks can get away with redraw offset :) and not explain the 250 k ADI guarantee..................... that they dont have, and that your money ALWAYS becomes their money.

    Disclaimer - we use non banks a lot, with appropriate disclosure AT APPLICATION, clients can make their own informed decisions

    ta
    rolf
     
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  2. Marg4000

    Marg4000 Well-Known Member

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    The main issue I see is that redraws and off-sets are often mentioned in the same breath, so many people tend to bracket them together and treat them as the two sides of the same coin.

    In reality, they are totally different.

    The offset account is simply a bank account. Its only tie is that it does not pay interest, instead reduces interest on the attached loan. You have full control.

    A redraw facility is part of the mortgage, control is shared by you and the bank. And the bank has the upper hand.
    Marg
     
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  3. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    They alos have very different potential tax implications, both negative and positive depending on the scenario.

    I guess what I am getting at is that we are finally seeing some disclosure of things that non banks have been getting away with for like 20 years.

    In most cases, its simply a storm in a teacup, but in some cases the issue can be very costly

    ta
    rolf
     
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  4. Lindsay_W

    Lindsay_W Well-Known Member

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    That is concerning and often overlooked, I've heard many clients say "redraw is the same as offset" - once educated on the subject they much prefer the offset option :)
     
  5. David Shih

    David Shih Mortgage Broker Business Member

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    Yea this offset vs redraw seems to be a common misconception...which is why I did a video with whiteboard on this to make it easier to visualize for people:


    And nowadays I just flick the link through to my client and they usually go "OK I get it now" :)

    Cheers,
    David
     
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  6. Paul@PFI

    [email protected] Tax Accounting + SMSF Business Plus Member

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    The very names help to explain the purpose.

    Not all knives are sharp. Not all lighthouses are bright
     
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  7. Terry_w

    Terry_w Mortgage broker licenced 4 tax/legal advice Business Member

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    And not all offset accounts are offset accounts!
     
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  8. KittyCat

    KittyCat Well-Known Member

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    Terry can you please elaborate?
     
  9. Terry_w

    Terry_w Mortgage broker licenced 4 tax/legal advice Business Member

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    Some institutions have redraw facilities labelled as offsets. Non bank financial institutions usually.
     
  10. paulF

    paulF Well-Known Member

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    Had a broker once tell me that there is no worthwhile difference between Offset and Redraw . He also frowned at the idea of IO loans in general... It was a very short first/last meeting after that.
     
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  11. TheSackedWiggle

    TheSackedWiggle Well-Known Member

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    :confused:
    Please elaborate
     
    Last edited: 5th Dec, 2018
  12. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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  13. TheSackedWiggle

    TheSackedWiggle Well-Known Member

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  14. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    possibly

    depends on the loan amount, the cash out and if the cartel approves of cash out at the time.

    ta

    rolf
     
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  15. Amv8

    Amv8 New Member

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    Is there an interest rate differential between redraw and offset? Surely you pay more for the offset flexibility?
     
  16. Terry_w

    Terry_w Mortgage broker licenced 4 tax/legal advice Business Member

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    no
     
  17. Terry_w

    Terry_w Mortgage broker licenced 4 tax/legal advice Business Member

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    well, some of the non bank lenders cannot offer offsets and they may have a cheaper rate than most banks so 'perhaps, depending on the lender' should be the answer.
     
  18. miximitosis

    miximitosis Well-Known Member

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    Given
    I haven't used a lender yet where a form is required to redraw although I'm sure they do exist. Great video nonetheless as it clearly articulates the difference between the two.


    @Rolf Latham or any other broker veterans - have you had a case where a client has been unable to access their redraw outside of being in arrears/discharging a security? Ignoring the tax implications, if a bank wants your money than surely they can take it from your offset account due to the all moneys clause?
     
    Last edited: 7th Dec, 2018
  19. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    For the AMC to apply, you need to be in default of the mortgage agreement.

    Under most rules for redraw and indeed for LOCs , this isnt the case.......

    Repayable on Demand tends to mean exactly that

    ta

    rolf
     
  20. miximitosis

    miximitosis Well-Known Member

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    Thanks Rolf.

    Have you had any clients lose access to redraw on regular P&I loans that weren't in default/being reassessed?