Offset accounts -- is this legal?

[evil]

Hi

The way I understand offset accounts, is that the interest you earn offsets the interest payable to the mortgage loan which is calculated daily. Assuming its 100% offset, this rate is the same rate as your mortgage loan. This rate is higher than most if not all savings accounts and term deposits.

Now if say I have an interest rate of 8% for example for my mortgage loan and thus earning (reducing) interest on my loan. I also have a friend/relative who has say $500,000 in cash (or the same amount as my mortgage loan) and is looking to earn interest on it. Can I offer him/her a rate of say 7.5% by depositing his $500,000 (or my loan balance) into my offset account, thus I pay no interest to the bank but I pay 7.5 interest to my friend/relative and a saving of a 0.5% interest.

Is this legal?

Cheers

 

[Pa1nter]

I also have a friend/relative who has say $500,000 in cash (or the same amount as my mortgage loan) and is looking to earn interest on it. Can I offer him/her a rate of say 7.5% by depositing his $500,000 (or my loan balance) into my offset account, thus I pay no interest to the bank but I pay 7.5 interest to my friend/relative and a saving of a 0.5% interest.
Is this legal?
Cheers

Lets put it in my bank account first and I'll let you know if I get in trouble

 

[jroth]

I can't see anything wrong with it. I've done something almost similar on a small scale by borrowing from a parent to repay the balance of a personal loan that had a high interest rate and paid the parent back at a rate above what they were getting from term deposits.

The person lending you the money should be declaring the income, but thats not your problem.

 

[Africandaisy]

Hi

I also have a friend/relative who has say $500,000 in cash (or the same amount as my mortgage loan) and is looking to earn interest on it. Can I offer him/her a rate of say 7.5% by depositing his $500,000 (or my loan balance) into my offset account, thus I pay no interest to the bank but I pay 7.5 interest to my friend/relative and a saving of a 0.5% interest.

Is this legal?

Cheers

It may be legal but...would your friend risk giving you half a million bucks with no security, just to get 1% more interest than he could get at Ubank with a government guarantee?

 

[Ace in the Hole]

What benefit would you get out of it?
Sure, you gain 0.5% discount off your loan, but then you pay tax on the $40,000 extra income.

 

[Rob G.]

The "all monies" clause giving the right to the bank to grab that amount in satisfaction of your debts.

Your relative should get some serious legal and financial advice.

Cheers,

Rob

 

[Marty McDonald]

The "all monies" clause giving the right to the bank to grab that amount in satisfaction of your debts.

Your relative should get some serious legal and financial advice.

Cheers,

Rob

As others have said the risk reward is all wrong for your relative. This is also why almost all lenders won't allow an offset accounts in any other name(s) besides the borrowers names.

 

[Terry_w]

Yes legal, but it brings up a host of other issues.

What if you went bankrupt - they would be an unsecured creditor.
Family law disputes - will the courts believe it was a loan.
Centrelink - issues if one party 5 years away from a pension
death - is it taken into account in the estate plan.
tax - they need to declare income from interest
disputes - what if there is an argument regarding interest calculations. Could ruin the relationship.
default on loans - all monies clause as indicated by Rob.

If you go ahead you should use a lawyer and enter into a written loan agreement and both parties to get independent legal advice.

 

[DaveM]

Friends & Family |-------------------------------------------------| Money

 

[Bradsdad]

Yes legal, but it brings up a host of other issues.

What if you went bankrupt - they would be an unsecured creditor.
Family law disputes - will the courts believe it was a loan.
Centrelink - issues if one party 5 years away from a pension
death - is it taken into account in the estate plan.
tax - they need to declare income from interest
disputes - what if there is an argument regarding interest calculations. Could ruin the relationship.
default on loans - all monies clause as indicated by Rob.

If you go ahead you should use a lawyer and enter into a written loan agreement and both parties to get independent legal advice.

That saved me a bit of typing . Further to your point o tax-declaring the interest, if you get audited by the tax office these funds will need to be explained. If you friend isn't declaring the interest then RUT ROH