Lender says that cash in offset won't reduce minimum repayments (Interest Only)

[Jaz]

Hi All,

I've got a bit of an issue with my new IO+Offset account. According to the bank, putting a lump sum into the offset account linked to my IO loan will not reduce the interest repayments - the minimum monthly repayment will not change. The offset will only have an impact if principle is payed off. When I asked why they would sell IO+Offset loans, the response was that "There is no point in having an offset if the loan is interest only".

If this is, in fact, the case with this particular lender (I'm still waiting to speak to someone who can provide more information), I'm wondering what the best course of action is. It doesn't sound like there is any use for the offset account, and we don't own a PPOR to pay down.

Cheers,

Jaz

 

[D.T.]

Never heard of that before. Its likely you're dealing with a retard. Which bank?

 

[Rolf Latham]

the old STG IO ppor loan was like that......they used to tell us it was "illegal" to have IO offset proper in PPORs...... and even today they still cant to the basics

Which lender is it ?

ta
rolf

 

[Jaz]

the old STG IO ppor loan was like that......they used to tell us it was "illegal" to have IO offset proper in PPORs...... and even today they still cant to the basics

Which lender is it ?

ta
rolf

It's Newcastle Permanent.

I don't understand why they would sell a an IO+Offset loan at all??

Cheers,

Jaz

 

[Aaron_C]

lol that's funny. Best get onto their complaints department.

 

[Jamie M]

It's Newcastle Permanent.

I don't understand why they would sell a an IO+Offset loan at all??

Cheers,

Jaz

I don't deal with them so can't comment on the specifics of the product - but if that's actually the case, then an external refinance could be in order.

What sort of LVR are we talking about? Have you paid LMI on this loan?

Cheers

Jamie

 

[Jaz]

I don't deal with them so can't comment on the specifics of the product - but if that's actually the case, then an external refinance could be in order.

What sort of LVR are we talking about? Have you paid LMI on this loan?

Cheers

Jamie

Yes, we paid LMI: 95% LVR

 

[geoffw]

I had an issue similar to that. I paid a large amount from the sale of my business into the account with the highest interest rate, the only one which was P&I. The monthly payment did not change. When I enquired, I was told that the principal repayment reduced the term of the loan, that the loan would be paid off much more quickly.

I was anxious to increase my cashflow, so I switched the amount to an account which was interest only, where repayments reduced the monthly payments.

(The loans all had redraw available- I had an offset account with sufficient funds for any non deductible needs).

 

[Terry_w]

Must be an illinformed staff member. Try talking to another person at the bank.

A 100% offset account must reduce the interest payment, otherwise it would't be an offset account.

 

[Aaron_C]

Yes, we paid LMI: 95% LVR

Ouchies! Better complain to the right person otherwise say you will report them to COSL for misleading you.

 

[Mick C]

Doesn't sound right if it's a true offset account...Look at the term and condition PDF it will tell you how they cal the offset and interest.

 

[SYD2013]

I had this issue with SGB.

My loans were on I only but one of them rolled over onto P&I then I started getting the offset benefit...... Wen I enquired why they did not know? Still looking into it now but glad I bumped into this post as they may also be unsure themselves......

Seems weird I had these loans all that time and was not getting any offsets - the account is called the "Complete Freedom Offset Account".

Hmmmm...... any chance of getting interest offset back over the last 5 years lol...

 

[Mick C]

the good old St george offset....they actually have 2 different type of offset ( as pointed out by Pete and Rolf) they use too have one for investors and one of Owners occupied.

St.George Bank Mortgage Equaliser 100% Offset Facility is available - for Owners occupied -On any day, the Bank only calculates interest on an amount equal to the outstanding balance of a customer's home loan less the credit balance that day in the account/s linked to the loan. This reduces the loan term enabling the customer to repay the loan sooner.

St.George Bank Repayment Offset .This option is available to investment customers with interest-based repayments and who have their repayments setup as internal automatic transfer or external direct debit from nominated accounts.Rather than reducing the balance of the loan, and thereby the interest accrued and the term of the loan, this option would reduce their minimum monthly repayment amount, leaving the loan balance and loan term untouched.

Note the St.George Bank Repayment Offset is available for both Owners occupied and investors ( brokers written deals anyway).

 

[Rolf Latham]

Thats maybe because the product is "interest based" not interest only

ta
rolf

 

[Gerg]

I have a loan with offset with Bank SA, part of SGB.
I recently changed my loan from P+I to IO, and I am confused with the outcome.

When it was P+I, the offset interest savings were reducing my loan term I think, and I was also making some extra repayments which are now available in redraw.

I've now changed to IO, and 15 year term.

The outstanding loan is 175k with an additional 75k in redraw. So when my interest only documentation came through, it quoted a minimum repayment of 1100 / month. (250,000 x 0.053 / 12 = 1104).

Fine, I thought, this makes sense because if I make redraw I would be paying this amount.

I also have 80,000 in offset account, so thought that my IO payment would be on 95k only (250k - 75k in redraw - 80k in offset)

Now I have recieved my first statment since changing, and my interest is $400 (5.3pa of 95,000) however the month repayment is $720 which seems to be based on the full oustanding loan amount of 175k. So I am still paying principle of 320 / month.

Does this make any sense at all?!? Maybe I need to contact them again, but given the above info, maybe it's the best I can do without refinancing.

Not a huge issue, but the point of going IO was to preserve the tax status of what is left of this loan. I don't want to be paying off any more off the principle.

 

[Terry_w]

St G are weird. They have about 3 different 100% offset accounts. One of them reduces the principal of the loan and this is what you may have, other ones keep the balance they same but just reduce your payment.

You must be on the wrong one.

 

[Brady]

Sounds like few cases of a ill informed bank staff.

If its a 100% offset it will reduce your interest charges.

But they are likely getting confused with P&I as the minimum monthly repayment amount doesn't change.

The also could be just going off an automated figure which is generated when changing to IO which doesn't take into account the offset.

Likely same thing has happened when people have been set letters out after being changed to IO. Usually automated and possible not including IO & Redraw.

 

[Rolf Latham]

Sounds like few cases of a ill informed bank staff.

More like the STG system

for years I have been trying to get a written explanation from them as to why their systems charge say $ 27.16 for interest on a fully offset 500 k loan and then reduce that off the principal.

Structurally, middle term makes no difference, but does confuse the heck out of borrowers

ta
rolf

 

[Colin Rice]

St.George Bank Repayment Offset .This option is available to investment customers with interest-based repayments and who have their repayments setup as internal automatic transfer or external direct debit from nominated accounts.Rather than reducing the balance of the loan, and thereby the interest accrued and the term of the loan, this option would reduce their minimum monthly repayment amount, leaving the loan balance and loan term untouched.
Note the St.George Bank Repayment Offset is available for both Owners occupied and investors ( brokers written deals anyway).

There is a quirk (or 20) in the St George system which I found out via an inquisitive nature that I inherited.

If the loan is interest only the assessor can only choose one of the other two offsets, funny that (other than the one described by Mick C above which is the correct one for peeps on SSF).

Get your broker/banker to write the correct offset on an A4 sheet of paper in bold 24 font nominating the "Repayment Offset" as the required type and submit with the application supporting docs.

When the St George staff member contacts your client for loan accounts etc. advise to make sure this has been set up and if not then get them to set it up.

 

[Aaron_C]

Get your broker/banker to write the correct offset on an A4 sheet of paper in bold 24 font nominating the "Repayment Offset" as the required type and submit with the application supporting docs.

Come on Colin...you know with St George that 24 font won't do. I think you have to be as subtle as a freight train with their staff.