SMH article - "withdraw money from your redraw now"

Discussion in 'Property Finance' started by big_ben02, 19th Aug, 2018.

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  1. big_ben02

    big_ben02 Well-Known Member

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  2. Simon Hampel

    Simon Hampel Founder Staff Member

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    FYI - I've changed the title, since the article was NOT recommending that people "withdraw money from your offset now" like your original title implied.

    Instead, they are recommending that people "redraw" any available funds from their loans and place them into their offset accounts to avoid losing access to the redraw funds in the case where you're actually behind in your repayment schedule (because of past arrears or an authorised loan holiday), but ahead on your overall balance because of making additional repayments.

    Personally, I think the advice is ill conceived and potentially dangerous.

    Hopefully one of our resident mortgage brokers can confirm - but I would assume that if you had past arrears, but have now parked extra funds in the redraw - the only amount available to actually redraw will be that above and beyond your repayment schedule anyway?

    I can also conceive of people getting themselves into difficulty if they maximise their redraw and park it into an offset, believing that they get the same protections that they get from being ahead in their loan repayments if they happen to miss a payment or two - my understanding is that an offset account won't stop you going into arrears?

    Nor does it mention the typical "all monies" clauses in loan contracts which basically means that if you do default on your loan, the bank can simply take money from your offset account to apply towards any outstanding balance - so it doesn't actually give you more real protection, just delays the inevitable.

    Their statement "an [offset] account gives you the identical interest saving but, crucially, is operated by you and not the bank." is only true to a point - and I get what they are saying about banks arbitrarily changing redraw facility limits, but I don't think their has been sufficient discussion about the risks. The implication is that "offsets are safe from the bank", which is generally not true.

    It also makes no mention of the potential tax implications for investors of withdrawing money from a redraw facility!

    Caution should always be taken when listening to the advice of a journalist on financial matters :rolleyes:
     
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  3. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    Not going to happen (certainly not en mass).

    The public's reaction would be to get everything out of that bank immediately. People would refinance their loans, shut their savings account, close their credit cards. The bank would be out of business.

    If the banks were planning something like this, they certainly wouldn't be telling mortgage brokers, financial planners and especially not journalists about it.
     
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  4. big_ben02

    big_ben02 Well-Known Member

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    Whoops - still half asleep obviously!
     
  5. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    Oh My

    The whole wording of the piece is shall we say not objective, and I personally believe, there is stuff being made up..............from interpretations of isolated other data.

    Conspiracy like even :)

    While I am a big believer in offset vs redraw/LOC for similar and other reasons, there is no imminent "sweep" swoop or poop into onto or around CBA or other APRA controlled bank mortgage backed regulated loans ,................. just after the RC finishes.

    Just my common sense view

    More later

    ta
    rolf
     
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  6. C-mac

    C-mac Well-Known Member

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    Hypothetically though... could this also happen to offset accounts??

    I get it. Redraw is technically money you've paid off the loan so the lender is possibly aithin their rights to refuse to give it back to you.

    But couldn't they do the same with offset accounts one day?? Technically an offset account is really just a standard savings account to a degree. If banks get desperate, could they not just dis-allow someone access to the funds in their offset accounts? A la Greece freezing ATM machine access to cashola, during hard times?
     
  7. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    Hypothetically it could happen.

    Something similar did occur in one of the Mediterranean countries a few years ago. I don't know if it was redraw, or savings, or any specific details. The government or banks took a huge amount of money across the board. It caused a major run on the banks and was an economic disaster for the country.
     
  8. Trainee

    Trainee Well-Known Member

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    Hypothetically we could have 1000000 percent inflation because its happened in other countries. Still not buying gold.
     
  9. Younginvestor2

    Younginvestor2 Active Member

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    Feels like it maybe one of those rumours where a bank decided to release to test government’s or regulatory body’s reaction. At least for now I will take it with a grain of salt.
     
  10. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    Im often wrong but never in doubt, so Id suggest for those that are fearful of such reportage being "true" that they act on what they believe is reasonable in such circumstances based on their OWN circumstances and their OWN research.

    There are issues that are worthy of discussion......... some examples ......

    Financerisk is real............... but needs to be taken in the overall context and needs to logically responded to, rather than reacted emotionally too - I trust that difference makes sense to most.

    These are issues worthy of discussion that brokers have written about here many a time here are some links to my recentish content.

    Best interest rates in the market atm!

    Non-bank lenders

    Non-bank lenders

    Non-bank lenders

    and even more recently with one of the largest non bank funders, U bank is a NAB warehouse funded product that is marketed via Advantedge, and white labelled for many aggregators and mortgage managers.

    Online Banking Terms & Conditions | Products - UBank

    have a read of Section 7...... yep it makes for some shall we say interesting points where one could be in trouble quickly

    Redraw Facility Detailed - Time to approve & interest period

    Read your LOC loan backed mortgage T&Cs recently :).......... and wonder what "repayable on demand means"

    Sure be concerned, but diligently so, not lemming wise so.

    Happy to have a chat with anyone that has concerns around this sort of thing - some borrowers likely do need to be worried and act to allay this concern, but most will be just fine.

    ta
    rolf
     
  11. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    if you are in default of your loan agreement, AND the lender obtains a judgement of same under their all monies thingo ( calling Terryw ????) then they have legal access to those funds in the offset.

    Aside from that, id suggest it would be " state of emergency" or martial law stuff

    I believe in Oz that savings acct is guaranteed by the Fed gov to 250 k per entity - probably not so in Greece :)

    ta

    rolf
     
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  12. qak

    qak Well-Known Member

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    I wonder if the author of the article is referring to something similar to the CBA move to reduce the amount of redraw available as the remaining term of the loan reduces - looking at my loan that was in Feb this year. Maybe another bank is following suit?
     
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  13. Zoolander

    Zoolander Well-Known Member

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    I made a joke remark here about being lucky that rule changes havent touched offset accounts. Just cut around the edges with grandfathered depreciation and travel expenses. Shoulda kept my mouth shut lol
     
  14. Terry_w

    Terry_w Mortgage broker licenced 4 tax/legal advice Business Member

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    If you were to default the lender wouldn't need a judgment to access the funds in the offset account. You would probably be contractually giving them permission to take the money to satisfy any debt to them. The offset account is essentially mortgaged.
     
  15. Terry_w

    Terry_w Mortgage broker licenced 4 tax/legal advice Business Member

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    The SMH article is immature and naive. Wonder if the writer is qualified to write about credit products like this - or more importantly licenced.

    Legal and tax aspects also a serious consideration.

    It is also relatively dangerous to encourage the average person to do this.
     
    Last edited: 19th Aug, 2018
  16. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    thanks for the legal clarification.

    Effectively similar then to a fixed and floating charge on all assets with that lender ?

    ta
    rolf
     
  17. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    Even if that were the intention........... the path of the article is pretty clear :) - just my view

    The compaction of limiting the redraw to a time of the loan context is due to pressure from regulators around good client outcomes.

    lets be mindful that lenders make money from lending money, not grabbing it back..........

    ta

    rolf
     
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  18. Terry_w

    Terry_w Mortgage broker licenced 4 tax/legal advice Business Member

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    Yes, sort of but I don't think the bank takes an actual PPSR charge.
     
  19. WattleIdo

    WattleIdo midas touch

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    This disclaimer appears early on and quickly extinguishes any flicker of credibility.
    Like, of course if your payments are behind, the bank is entitled to take that/those payments from your redraw. The redraw is a kind of buffer for your repaymnents, not your lifestyle.
    The only way you could be more than one payment behind is if you have a special arrangement with the bank due to hardship or whatever, in which case they're not going to take it unless the conditions or time arrangements have now passed.
     
  20. alicudi

    alicudi Well-Known Member

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    Hi

    I do recall this as well, and it was peoples "Savings" that were targeted.and I believe the country may have been Greece.

    Interesting to see what happens in regards to the article that the OP has mentioned and those traditionally high risk borrowers that may have some extra funds in their redraw account. I wonder which bank is considering this?

    Regards,

    alicudi
     
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