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Understanding offset

Discussion in 'Property Finance' started by bonanzawealth, 8th Oct, 2015.

  1. bonanzawealth

    bonanzawealth Well-Known Member

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    if I have $500k worth of PPR then open IO offset $100k at 5% interest then I never withdraw it, just have it sitting on the offset account, would that mean I get charged $5k as interest or no interest charged since I never withdraw anything?
     
  2. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    It will reduce the interest you pay compared to if you didn't have any money offsetting the loan.

    You don't get paid, you pay less. Does that make sense?
     
  3. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    You will pay interest on $400k
     
  4. House

    House Well-Known Member Premium Member

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    Interest-only will be calculated on the balance of $400k.
     
  5. Travelbug

    Travelbug Well-Known Member

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    Can I just clarify as it is not clear.
    You have a PPOR worth 500K?
    Or you have a loan of $500K and you put $100K in the offset?
    You state- then you open an offset? It sounds like it may be a LOC with $100K available?
    Or is it something else?
     
  6. Jamie Moore

    Jamie Moore MORTGAGE BROKER - AUSTRALIA WIDE Business Member

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    Agree with @Travelbug - sounds like OP might be confusing an offset with an equity release?

    If you've got a $500k loan with $100k in the offset then you simply pay interest on $400k as has been covered above
     
  7. bonanzawealth

    bonanzawealth Well-Known Member

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    Umm... Not $500k loan. The PPR is $500k value then equity release $100k IO loan offset. So do i need to pay interest on the $100k if I leave it in the offset, never withdrawn?
     
  8. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    Assuming the offset account is linked to the $100k equity loan, you wouldn't pay any interest on the equity loan as it's fully offset.

    That said, you're probably better served to put the money into the equity loan redraw instead of the offset account, the result should be the same. Putting it into the offset account increases the chance that you'll make a mistake and contaminate the purpose of the funds and the loan, which could affect the tax deductibility of the equity loan.
     
  9. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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  10. bonanzawealth

    bonanzawealth Well-Known Member

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    So if I leave it on the equity loan redraw and not yet withdrawn anything then I shouldn't be charged interest, right?

    Wth is wrong with my lender... They charged me full interest and I've only withdrawn $2k. Account was just opened less than a month and charged interest as if the full $100k has been used.
     
  11. Jamie_

    Jamie_ Well-Known Member

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    Had this issue for a couple of days, offset account wasn't linked to the loan created from equity draw.

    You shouldn't be charged any interest as assuming you haven't used anything, it is being fully offset.
     
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  12. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    Sounds like the offset hasn't been linked to the loan account - time to call your lender to sort it out.