Happy with my Tic Toc home loan rate (1.89% 2 year fixed o/o with offset).
However, the interest that I have 'offset' with my account balance isn't accessible.
In other words. if I was supposed to pay $2,000 in interest, but only $500 went to the bank, then I have effectively offset $1,500 of interest.
Question: should I be able to access/redraw that $1,500?
My previous banks let me. Adelaide Bank doesn't seem to… although I may be looking at my wrong?)
What did the bank say when you asked?
Not financial advice, read your products’ pds.
AFAIK, you can redraw (if the product allows redraws) the extra amount on top of your min payment. E.g., min payment is 1k, you paid 1.5k that month, you now have $500 available for redraw.
As for offsets, if you are only paying min payment each month, regardless of how big the interest component is, the rest goes straight to principal, i.e. not available for redraw. E.g., min payment is 1k, you paid 1k that month, loan is fully offset ($0 interest), 1k goes straight to pay off principal.
In other words. if I was supposed to pay $2,000 in interest, but only $500 went to the bank, then I have effectively offset $1,500 of interest.
This makes no sense to me.
The way that an offset works is by reducing the principal on which you are paying interest.
For example, suppose that you have a $500,000 loan at 2% p.a. compounded monthly for a standard 30 year loan. Your monthly repayment will be $1848 per month (type =PMT(0.02/12,30*12,500000) into Excel if you want the calculation).
Of the $1848 that you pay, a certain amount will be interest, and the remainder will amortise your principal. In the first month, your principal will be $500,000, therefore, your interest will be 2% * 500,000 / 12 = $833. This means that of your $1848, $833 will be used to pay your interest, and your principal will be reduced by ($1848 - 833).
If you have money in your offset, you will reduce the principal you are charged interest on. Therefore, you are still making the same monthly repayments, but a greater amount of that will be going to pay off your principal. Thus, you are reducing the interest you pay.
FWIW, you can obviously withdraw what you put into your offset account. Some banks will allow you to redraw if you are ahead of the amortisation schedule due to your offset, others will not.
So let's use your example from above and put $250k into an offset account.
This implies that I would only be paying roughly half the interest.
So payment from offset to home loan is $1,848
Interest that the bank takes is $433
What happens to the $433?
It obviously decreases the loan balance.
But can I then access that as a redraw?
Reading the detailed contract, it mentions nothing about them holding onto the offset interest.
it mentions nothing about them holding onto the offset interest.
The bank is not holding onto the ‘offset interest’.
The idea of offset is that it reduces your interest and uses that reduction to pay off more of your principal (which primarily benefits you).
Minimum payment is minimum payment, you will have to pay that exact amount each month with no ability to ‘redraw’ part of it back, regardless of the offset amounts.
Afaik a product usually comes with either a redraw OR an offset facility, not both. Does the contract for your offset product mentions anything about allowing redraw? Btw these are great questions to ask before you apply for the loans.
The previous bank that allowed you to redraw, did that product come with an offset account as well?
Does the contract refer to your monthly payment, as minimum monthly payment?
Happy with my Tic Toc home loan rate (1.89% 2 year fixed o/o with offset).
It's not an offset account.
Free online redraw on any additional repayments
https://tictoc.com.au/
Offset is $10 p/m.
Offset account optional for $10/month
Some lender will require fixed X amount to pay each month / fornight. If you have offset, you still need to pay X amount, however the interest portion from that X will be lower. That means you are forced to pay off your mortgage sooner.
Not sure why you got a neg so have a +
Huh? That's not how principal repayment works?
Are you mixing up with redraw?