Say I have a home loan of $500k and I have a 100% offset account associated to it, with deposit of $500k already, which means essentially I am not being charged any interest. Will I still be asked by the bank to pay off the home loan with regular payments? Or can I choose to not pay off the home loan so that I can have $500k capital to leverage? Of course I am taking about doing this within the loan period, just not paying regularly, will still be settling the loan before it ends (e.g. within 30 years).
Do I Still Have to Make a Minimal Regular Payment to My Home Loan if I 100% Offset It Already?
justwii on 28/12/2017 - 00:25
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Yes they usually have a regular transfer setup, but this is changeable too.
Your offset amount has no bearing on the repayments. The minimum repayment amounts are determined by the original principal, the agreed term and interest rate of the day, therefore you are required to keep paying repayments until the principal is paid off (which should be fast given no interest is payable).
Yes I understand that the minimum repayment is there to make sure you can repay the load amount before the end of the load period, but now with 0% interest, this amount is not relevant anymore, so wouldn't it make some sense to lower the minimum repayment amount (by taking into account the zero interest) or to an extreme not make regular payment at all as long as the offset is there?
No you still have to make the calculated minimum repayments as I mentioned.
All the offset is doing is reducing the principal for the purposes of interest calculation.
Assuming loan principal of $500k / 30 years / 4% / weekly repayments / $500k in offset account Day 0.
Week 1 you will still have to pay that $550 / week repayment, the benefit of the offset means that in Week 1 you will have knocked off $550 off the principal instead of only $165 (with no offset).
Yes but if the minimum repayment does not change that means at that rate the loan will be paid off < 30 years.
Can't the bank at least adjust the amount to keep the loan span across the same 30 years?Think of the offset account being applied after the repayment. You pay your monthly repayment, then interest is typically applied. In this case you make your repayment, then $0 interest is applied to your balance.
Interest on your mortgage is applied monthly. Your repayment schedule factors this in. However your full mortgage offset account will nullify this interest, meaning that no interest is charged.
@justwii:
tsunamisurfer is correct , and it depends on the loan you have , almost all new loan repayments are based on principle as above , you are talking about a loan that is calculated on balance , i dont think any lender does these types anymore, but again , depends on what you agreed to.
Your offset is reducing your interest… not your principal.
Your monthly loan repayments are based on paying off your loan and interest witihin a certain time frame. Given that your interest is minimal… the you would now be paying the loan off quicker.
You could ask the bank to recalaculate your monthly repayments… but this would still be calculated assuming you have $0 in offset… so The repayments won’t reduce by as much as you would like.
Yes, you still need to make monthly repayments.
How did you manage to top up your offset at the snap of a finger like that?
Please share your imperial wisdom, for I want to learn…
Maybe family member parking some money with OP to help out
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If you have a $500k loan and a $500k sitting in the offset, you won't have to make the minimum monthly repayments as such.
The amount that is available for redraw from your offset will become less each month.
For example, to put it very simply:
First month: redraw available = $500k
Second month: redraw available = $500k, less your monthly minimum payment
Third month: redraw available = $500k, less 2x your monthly minimum.
etc, etcEach month, there'll be automatic transfer of the minimum payment into the loan from the offset.
Just be careful because if there is enough in your offset to pay off the entire loan, they may actually close off your account without asking.
If you simply want the money to sit there to offset the interest but still have it available for redraw, don't leave enough in there to completely offset the whole mortgage. Leave a little "gap amount" between the mortgage and the offset (interest will be charged on that gap amount).
The only way I could see no repayments being needed is if it is an interest only loan. If no interest is being calculated, theoretically no payment would be debited.
Yes you have to make monthly repayments on your loan. Close this thread.
How does someone offset 500K and not understand the basic functions of their home loan and offset account.
They could also call their bank and ask them at question and get an answer in 2 minutes.
Switch to interest only loan, then no repayments required if fully offset.
how do you have $500k in savings??
I wonder whether op actually is currently in the situation or just thinking "what if". The question is certainly quite odd if op is in that situation.
There are some basic facts in loans, which seems to be clearly misunderstood, so let me try to dumb it down.
When u get a loan of $x from the bank to buy $y worth of property, then the bank will calculate how much repayment you need to make over the term (say for a loan over 30 years, you need to make a monthly repayment of $a). $a is calculated using certain assumptions (e.g. interest rate doesnt change, no additional repayment into the loan). That is the reason why $a changes when interest rate goes up or down.
When op is talking about reducing the repayment amount because he has an offset balance that is equal to the current loan balance, this is certainly achievable by op renegotiating the loan with the bank (and quite likely paying off a big chunk of the loan from the offset amount, which reduces the loan principal). Any renegotiated loan (in effect a new loan) with a lower principal amount than $x will have a lower repayment.
Before there were offset accounts, you can only make additional repayments and then redraw the funds, but this has tax implications, especially for property investors. The whole idea of offset was to replicate the whole additional repayment and withdraw arrangement (but without the tax implications as it is purely accounting).
If a bank (or any lender) is willing to reduce the repayment while letting the customer keep all of the offset amount (and not increase rate) without any renegotiation of the loan, it would certainly be a great product (but i don't know whether this makes good business on the lender).
I don't know the answer but I'm guessing bnk will still transfer the monthly payment to your loan account even there is no interest element.