Refinance Question - Weird Situation

LDuckingAround on 29/11/2022 - 22:15

Hi all, first time posting here but I love this site and get a lot out of it/have been lurking for a while.

I was keen for your collective thoughts on this situation. It’s a bit of an odd one.

I have a mortgage with a big four but have a redraw and have fully paid out the redraw (about $350,000 sitting in redraw to match the loan - house is worth about $750,000 these days). Basically I don’t actively make repayments and my redraw just shrinks monthly to cover it for the rest of the loan term.

I may want to discharge the mortgage in a few years’ time but like having access to the redraw funds just in case. I do have around $100k elsewhere easily available in savings/investments so I wouldn’t be destitute without the mortgage money if disaster hit.

With that being said, I’m considering refinancing to get a cash back offer ($4k for a bit of paperwork sounds very nice) but I am not sure if I’ll end up screwing my credit, or causing myself issues if I “churn” mortgage provider. A few grand is a few grand though and why not? Is there anything stopping people from refinancing, taking the cashback and then filling up the redraw/never paying interest? Any pitfalls you can think of? I couldn’t see many based on the Ts and Cs of a few lenders I looked at.

Currently my loan rate is 4.7-4.8pc (but not that fussed as not paying any interest).

All thoughts welcome… Thank you.

Financial

Comments

  • Wiadro on 29/11/2022 - 23:21

    I churn every 12 months, because rates are going up there’s not much point at the moment unless you are on an already high rate, which it seems you are (4.7-4.8%).
    You could churn to a lower IR% bank and get your cash back but remember there’s fees to discharge and to apply for a new loan so you need to calc the net profit you’ll get from doing it, usually ends up being 2.5-3k cash back, however some banks distribute the fees into the loan amount.

  • SmiTTy on 29/11/2022 - 23:45

    When you say redraw… I assume you mean offset?

    There's nothing stopping you from churning except all the paperwork which can be a headache. I guess you would need to know which lender to go to to offer you the best cashback and be confident about getting approved. Mortgage brokers usually wouldn't want to get involved if it's fully offset because they wouldn't be getting paid so you'd have to manage this yourself.

    • MITM on 30/11/2022 - 14:14
      +1

      Big difference between redraw and offset. Redraw sometimes has max withdrawl amounts.

      • SmiTTy on 30/11/2022 - 15:08
        +1

        Yes the OPs wording is a bit confusing, stating that they " have fully paid out the redraw" and "about $350,000 sitting in redraw to match the loan"

        Reads to me like an offset rather than redraw

  • WreckTangle on 30/11/2022 - 08:03

    Your redraw covers your regular payments? What bank does that?

    • BillyStm on 30/11/2022 - 08:19
      +1

      Offset balance = total of loan, which means each payment taken as usual but no longer accruing interest daily.

      • MITM on 30/11/2022 - 14:15
        +1

        Yes, but OP says redraw.

    • dcep on 30/11/2022 - 12:21
      +1

      ask bank direct debit repayments from redraw

  • MITM on 30/11/2022 - 14:18

    Parents left $1 owing on their mortgage to prevent fraud. Being freehold leaves you exposed to having your house stolen from under you. Interest only loan with interest paid annually in advance.

  • JIMB0 on 01/12/2022 - 09:25
    +1

    I'm in a similar situation and did a cash out refinance as my original loan was very small. The bank just asked what I wanted the extra money for. I said renovations and a new car. Then when settled I put most of the money back on the loan, told the bank I wasn't ready to spend it yet. Got my cash back no problems after the first monthly payment, then filled out a form to stop repayments.

    • MITM on 01/12/2022 - 11:32

      Ah, so that's why bank profits are down. Nicely played my friend - rinse and repeat ?

      • JIMB0 on 01/12/2022 - 12:20

        I'd need to go back to full time employment to refinance again. I doubt they'd lend against the limited amount of casual work I do.

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