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

Discussion in 'Loans & Mortgage Brokers' started by Rolf Latham, 4th Dec, 2018.

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  1. Peter_Tersteeg

    Peter_Tersteeg Mortgage Broker Business Member

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    It is rare, but I have seen banks force people to pay down their loan. It's usually related to some sort of event, but I have seen it for the reason of, "You've borrowed more than we're comfortable with, we're using this money to reduce your level of borrowing."
     
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  2. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    I have seen several clients with redraws and offsets affected. I imagine brokers could write a book of examples.

    - Bank terminated offset product (A CBA acquisition) and just applied the offset to the loan and made the balance available as a redraw balance. NO warning. Took 18months to fix and the Ombudsman to order it be reinstated and pay damages.
    - A bank that took a offset and applies the offset to reduce a different loan in same name (crossed loans but a specific offset on one loan). Totally messed up IP deductions. Caused by an arrears on the IP while land lord insurance sorted unpaid rent.
    - Clients where bank has cancelled available redraw ie when moving from fixed to variable or var to fixed or when prepaying interest.
    - One client where due to financial hardship bank just took the offset and reduced the loan and then demanded the loan be refinanced (impossible) or paid out. Triggered by a minor loan arrears Terms in mortgage allowed this.
     
  3. miximitosis

    miximitosis Well-Known Member

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    Interesting......

    From everyone's anecdotes it appears:
    • When loans are in arrears/default offset accounts seem to provide little benefit over redraw in terms of the banks ability to claim funds. I.e. Due to the all moneys clause it would be wise to have spare funds with another lender. :)
    • There is terminology in loan contracts that allows the lender to retain redraw at any time. Although this appears to only occur due to arrears/default/discharge of security anyway, the wording does provide an additional level of risk to the borrower compared to an offset account.
    I wonder what legal rights the banks have in this instance purely for the sake of reducing exposure. I.e.The borrower is still meeting agreed repayments.

    Obviously available redraw would be the first cash grab but I wonder if there is legal grounds to further reduce limits with offset funds?
     
  4. Peter_Tersteeg

    Peter_Tersteeg Mortgage Broker Business Member

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    My understanding is that lenders can cancel redraw or refuse access to it at their discretion. They can't refuse access to funds in a savings account without really good reason, which includes offset accounts.
     
  5. Terry_w

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

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    probably only contractual rights.

    I have never seen or heard of a lender applying offset funds to a loan without permission of the borrower, unless the was a default on the agreement.

    Also can't recall anyone's redraw being cancelled. bUt have heard of LOC limits being cancelled or reduce for non-use
     
  6. Brady

    Brady Well-Known Member

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    A lot of these look on face value to be staff/user error - except the last.
     
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  7. Peter_Tersteeg

    Peter_Tersteeg Mortgage Broker Business Member

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    This one is worth further explanation...

    Most people are aware that extra payments on fixed loans are quite limited, but most don't realise that redraw on fixed loans isn't permitted with many lenders. Often the redraw amount will become available again after the fixed period is over, but in many cases fixing the loan will cancel the amount available in redraw permanently.

    Always best to check this before committing to a fixed loan if it's applicable.
     
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