When offset amount > loan amount?

mick123 on 02/07/2014 - 11:14
Last edited 02/07/2014 - 15:03

I was just wondering how this works, when the $ amount in your savings (offset) account equals or exceeds the amount in your home loan.

I know how offsets work generally when you are in debt, but just wondering what happens in below scenarios.

Few scenarios:
1.
Loan = $300,000
Amt in offset = $300,000

If loan interest is only, obviously no interest is payable, so bank would not initiate the regular repayment.
If loan is P&I (Principal & Interest), I am guessing bank will continue to do the regular repayment and total repayment goes to principal as no interest payable.

Are above assumptions correct?

  1. Loan = $300,000
    Amt in offset = $301,000

If loan is P&I, can you advise bank to not do any repayments as long as amount in offset equals or exceeds amount in loan?

Financial

Comments

  • tooblue on 02/07/2014 - 11:38
    +2

    My understanding of Principal & Interest Loan, the monthly repayment = principle repayment + interest payable.
    If available balance is greater or equal to the loan amount, then interest payable is 0, the bank only deducts the principle repayment portion from the offset account. It is like a 0% interest transaction account.

  • Almost Banned on 02/07/2014 - 14:46

    I found out something interesting about this issue recently.
    I had split my loan some time ago between a variable and fixed rate. When the fixed rate expired they both were on variable rates but still showed as two loans.
    I also had a 100% offset account which only offset against one of the two loans.
    At some point the amount in my offset account exceeded the amount in the loan account it was offset against.
    Without warning my bank transferred money out of my offset account to bring down the balance to not more than the amount in the loan account it was offset against.
    When I saw this large unauthorised transaction I flipped out - then I saw it sitting in my cheque account so was more annoyed and perplexed.
    Apparently the bank has a policy that won't allow the offset account to exceed the loan it is offset against.
    Still don't really understand why.

    • [Deactivated] on 03/07/2014 - 11:48

      Probably so the bank doesn't pay you interest at homeloan rates.

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