Offset families savings against loan?

someguycalledpaul on 07/12/2016 - 21:03
Last edited 07/12/2016 - 21:04

Hi there,

Situation I'd like to seek feedback for, and understand if I'm missing anything which could trip this up. Asking for a friend..

  1. A loan instrument has an interest rate of 3.64%

  2. Close family have cash savings incurring an interest rate of much less than this. (2.5%)

Scenario:

Family member places the cash into an offset account for the loan instrument.

Benefits:
A. A reduction in interest payments made to the loan instrument - Tick.
B. Net benefit is generally positive (i.e Interest Paid to bank minus interest owned)

Is there anything I'm missing?

Financial

Comments

  • Almost Banned on 07/12/2016 - 21:10

    The only thing I can see you are missing is that the 'close family' are no longer receiving 2.5% interest and your friend is no longer paying 3.64% interest on that amount.
    Is your friend going to pay his family some interest?

  • jaybmate on 07/12/2016 - 21:11

    How much is the cash savings? Is it really enough to be worth it?

    What is the benefit for the family member? Are they splitting the extra savings ?

  • dasher86 on 07/12/2016 - 21:23

    What happens if person decides to keep savings?

    • toristo on 07/12/2016 - 22:37

      ^This is the bigger problem

  • Agent Q on 07/12/2016 - 23:41
    +2

    The interest that the family member earns of 2.5% may be taxed…so for 'actual' interest rate, need to take that into consideration as it MAY be effectively lower….say closer to 1.5% if they are on a high Marginal tax rate…

    All points above are valid.

    Main thing really depends on comfort level of family member putting it in your offset and also ensuring that you calculate an equivalent interest to be paid to them, or to capitalise onto the principal they provide to you.

    But from a pure $ perspective, you can both benefit.

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