Ubank home loan question

[coolcup69]

Hi guys

My PPOR home loan is with Ubank and I have finally paid it off. Hurrah! My loan amount is $736k and I have the equivalent amount sitting in redraw. Currently every month Ubank direct debit a fixed amount out of my bank account as the monthly payment for the loan. I would like to stop these payments

As far as I can see my options are as follows:

1. Discharge the loan - which means no future repayments
2. Ring Ubank and ask the to recalc my monthly repayments based on the new outstanding loan balance (ie reduce repayments to zero)

My preferred option is number 2, but I wanted to see if any of you knew whether Ubank would be open to me doing this? In effect I would have a line of credit but I would be paying nothing for the loan. Do you think there are any issues with me calling Ubank and trying to exercise option 2? I don't want to suddenly be asked to discharge my loan...

Thanks in advance

 

[Aaron_C]

Change your loan to interest-only. Voila.

 

[Peter_Tersteeg]

Aaron's suggestion is a good one. If you ask the bank to reduce the repayments to match the amount owing, you may find them cancelling your redraw. Probably not the outcome you're looking for.

 

[coolcup69]

Sorry I should have made it clear to start with. I am on interest only at the moment.

Ubank has a weird system where let's say my original monthly interest only payment was $1000 a month. Let's say I make additional repayments into my redraw. The $1000 a month doesn't change until I ring up and ask them to recalc my interest only payment.

So, should I just call them and ask them to recalc it again or will they get upset that I won't be paying them any interest? Any thoughts or strategies here?

I could let them continue to take $1000 a month and manually transfer it back out of redraw every month, but that is a bit inefficient and time consuming.

 

[Aaron_C]

Sorry I should have made it clear to start with. I am on interest only at the moment.

Ubank has a weird system where let's say my original monthly interest only payment was $1000 a month. Let's say I make additional repayments into my redraw. The $1000 a month doesn't change until I ring up and ask them to recalc my interest only payment.

Weird, indeed.

So, should I just call them and ask them to recalc it again or will they get upset that I won't be paying them any interest? Any thoughts or strategies here?

Why would they get angry? They already aren't charging you interest!

I could let them continue to take $1000 a month and manually transfer it back out of redraw every month, but that is a bit inefficient and time consuming.

Consider tax implications of this. However, you are in a good position since you have 100% equity to start investing.

 

[coolcup69]

Why would they get angry? They already aren't charging you interest!

Good point. Their system isn't charging me interest but I don't know if they've figured that out yet. If I call them, I'm worried that it will bring it to their attention. Do a lot of people do this? That is, hold 100% of the loan balance in offset just to keep the cash there in case?

Consider tax implications of this. However, you are in a good position since you have 100% equity to start investing.

What tax implications might there be with this? It is a PPOR and I would only redrawing the portion that is above and beyond the total loan amount (ie not actually taking on any debt). And besides, it is non-deductible to start with so it stays non-deductible right? Sounds like I am missing something though which you are clued into...

Thanks for your responses Aaron_C

 

[Aaron_C]

Good point. Their system isn't charging me interest but I don't know if they've figured that out yet. If I call them, I'm worried that it will bring it to their attention. Do a lot of people do this? That is, hold 100% of the loan balance in offset just to keep the cash there in case?

Yes that is what people do (and should do) all the time. Liquidity trumps equity all the time.

What tax implications might there be with this? It is a PPOR and I would only redrawing the portion that is above and beyond the total loan amount (ie not actually taking on any debt). And besides, it is non-deductible to start with so it stays non-deductible right? Sounds like I am missing something though which you are clued into...

Oh I am just saying that when you start investing you shouldn't nilly-willy redraw/pay back at will as this will impact on what you can claim as tax deductions in the future. Right now it may not matter but later on it will.

 

[Rolf Latham]

Good point. Their system isn't charging me interest but I don't know if they've figured that out yet. If I call them, I'm worried that it will bring it to their attention. Do a lot of people do this? That is, hold 100% of the loan balance in offset just to keep the cash there in case?

I often take a "global "view to stuff like this .

my primary question to you is after reading section 7 of the conditions of the redraw

http://www.ubank.com.au/ubank/ib/documents/uhomeloan-terms-conditions.pdf


doesnt make you feel a bit funny that you have YOUR money with them, and THEY control what YOU do with YOUR money ?

ta

rolf

 

[coolcup69]

doesnt make you feel a bit funny that you have YOUR money with them, and THEY control what YOU do with YOUR money ?

ta

rolf

Do you mean this?

7.1 – Availability
You may from time to time request a redraw under a Facility on the
following conditions:
You have prepaid amounts under the Facility in excess of your
scheduled Payments,
the redraw amount requested by You is not more than your
Available Credit Balance,
there has been no adverse change in your financial situation or to
your ability to repay the Facility without hardship,
the Security and the Security Property are in order,
You request the redraw in accordance with these Terms and
Conditions,
at the time that You request the redraw there is no current Event
of Default,
no information has come to the attention of Advantedge and
no event has occurred which, in either case in Advantedge’s
reasonable opinion, would render the providing of the Facility
prejudicial to our interest, and
Advantedge, in its discretion, exercised reasonably, consents to
the redraw request.

I didn't think that anything there was too prejudicial? It is basically saying that you can redraw as long as you have capacity to do so. Maybe I am reading this wrong provision?

 

[Rolf Latham]

read the rest of section 7

and then drag out the loan provisions to see what default means under the loan provisions.............not as a common persona would apply, but as the contract actually says.

Its somewhat concerning.

You would NEVER knowingly give a bank your cash in a savings acct with these provisions, so why make it different with a mortgage backed loan redraw? its your dough ?

Sorry, a hobby horse of mine : )


ta

rolf

 

[coolcup69]

Yes that is what people do (and should do) all the time. Liquidity trumps equity all the time.

I totally agree with this. So you don't think they should pull the loan on my should I ask them to make my monthly repayments equal my actual interest charge?

Oh I am just saying that when you start investing you shouldn't nilly-willy redraw/pay back at will as this will impact on what you can claim as tax deductions in the future. Right now it may not matter but later on it will.

Yup understand. If say in 6 months time I decide to buy an Inv Prop and use funds from the redraw to fund the deposit, my understanding is that I should ring Ubank to ask them to create a split in the loan and redraw the money I need for the deposit from that split . The interest associated with that split should then be deductible. Is my understanding correct?

 

[coolcup69]

read the rest of section 7

and then drag out the loan provisions to see what default means under the loan provisions.............not as a common persona would apply, but as the contract actually says.

Its somewhat concerning.

You would NEVER knowingly give a bank your cash in a savings acct with these provisions, so why make it different with a mortgage backed loan redraw? its your dough ?

Sorry, a hobby horse of mine : )


ta

rolf

Don't be sorry. You are obviously more across the detail than an average joe like myself. My turn to apologise - I have read the loan provisions and I am not seeing what you are trying to open my eyes to. Apologies for being dense, I need a little more help!

 

[Rolf Latham]

Don't be sorry. You are obviously more across the detail than an average joe like myself. My turn to apologise - I have read the loan provisions and I am not seeing what you are trying to open my eyes to. Apologies for being dense, I need a little more help!

not dense, perhaps a little trusting

Go back to pre gfc days

move fwd to now

and overlay the following to a time where your lender has a liquidity crisis as during the GFC

there has been no adverse change in your financial situation or to
your ability to repay the Facility without hardship,
the Security and the Security Property are in order​

add that default also likely probably maybe relates to a property valuation as defined by the lender ..........................plenty of commercial borrowers that can tell you how that game works.

Now balance that against a mortgage backed loan with a 100 % offset account where you have capacity to take your money and "run" if you are wise enough to do so.

ta

rolf

 

[Aaron_C]

Yup understand. If say in 6 months time I decide to buy an Inv Prop and use funds from the redraw to fund the deposit, my understanding is that I should ring Ubank to ask them to create a split in the loan and redraw the money I need for the deposit from that split . The interest associated with that split should then be deductible. Is my understanding correct?

Yes that is right but I really don't think UBank is conducive to investing. You really need a proper line of credit or term loan facility where you can create loan splits online at the click of a button without having to call them each time to do so. Just my two cents.

EDIT: The thing that rolf is alluding to is the fact that UBank (or Advantedge, the lender) can unilaterally destroy your liquidity by calling in the loan and refusing to lend you extra funds. This liquidity trap is deadly and will almost certainly cause you hardship when you need it most. Why else would you need redraw unless you actually needed it?

 

[coolcup69]

Yes that is right but I really don't think UBank is conducive to investing. You really need a proper line of credit or term loan facility where you can create loan splits online at the click of a button without having to call them each time to do so. Just my two cents.

EDIT: The thing that rolf is alluding to is the fact that UBank (or Advantedge, the lender) can unilaterally destroy your liquidity by calling in the loan and refusing to lend you extra funds. This liquidity trap is deadly and will almost certainly cause you hardship when you need it most. Why else would you need redraw unless you actually needed it?

Hmmm fair call. I hadn't considered this. Given I have benefited from their lower rate and am now mortgage free, would it be better for me to refinance with another lender that is more conducive to lending and leave the money I have in redraw in the loan's associated offset account. Kind of two birds with one stone?

I've never liked the concept of redraw but I also wanted the lowest rate possible so I could get rid of my non-deductible debt ASAP. That is what led me to ubank. That rationale no longer really holds now I have paid off the loan so happy to move.

Overall strategy is to continue to build funds for Inv Props down the track say in 6 months. Any particular lenders you would recommend I refi to? Would they at all be interested in refinancing a loan where I would then effectively fully offset using the offset account? I bank with ING direct so am thinking that may be a good starting point but you guys have far more knowledge than I.

 

[Aaron_C]

Hmmm fair call. I hadn't considered this. Given I have benefited from their lower rate and am now mortgage free, would it be better for me to refinance with another lender that is more conducive to lending and leave the money I have in redraw in the loan's associated offset account. Kind of two birds with one stone?

If you are serious about investing, I would suggest that. I am a professional investor and I have no time to wait on the phone all day to get money out of my bank account. My time is far too valuable for that.

I've never liked the concept of redraw but I also wanted the lowest rate possible so I could get rid of my non-deductible debt ASAP. That is what led me to ubank. That rationale no longer really holds now I have paid off the loan so happy to move.

What are you paying with UBank now? 5.24% variable? That rate, while pretty good, means little now that you have paid off the private debt. All your future debt now will be (hopefully) tax deductible so 0.1-0.2% extra means diddly squat. I pay more in rates on my home loans than my clients (I realised today) but I don't really care because access to capital is far more important to me and my loans are a bit more out of the box security-wise.

Overall strategy is to continue to build funds for Inv Props down the track say in 6 months. Any particular lenders you would recommend I refi to? Would they at all be interested in refinancing a loan where I would then effectively fully offset using the offset account? I bank with ING direct so am thinking that may be a good starting point but you guys have far more knowledge than I.

Well, that's what a broker is for
ING have their uses (REF, in particular is quite good as a substitute for LMI) but hard to recommend without knowing more about your financial situation. Perhaps you could speak with a broker you trust and determine what you should do from here. All I will say is that you are in a good position to start off so make the most of it. So many questions to start off:
How hard do you go first? What LVRs? Which lenders first? Which last? Why? When is servicing maxed out? All should be managed by the broker.

 

[Rolf Latham]

Hmmm fair call. I hadn't considered this. Given I have benefited from their lower rate and am now mortgage free, would it be better for me to refinance with another lender that is more conducive to lending and leave the money I have in redraw in the loan's associated offset account. Kind of two birds with one stone?

I've never liked the concept of redraw but I also wanted the lowest rate possible so I could get rid of my non-deductible debt ASAP. That is what led me to ubank. That rationale no longer really holds now I have paid off the loan so happy to move.

Overall strategy is to continue to build funds for Inv Props down the track say in 6 months. Any particular lenders you would recommend I refi to? Would they at all be interested in refinancing a loan where I would then effectively fully offset using the offset account? I bank with ING direct so am thinking that may be a good starting point but you guys have far more knowledge than I.

Id suggest you speak with a good broker (or a good banker if you prefer a specific mono lender solution).

Your question as to whats a good lender rings like. whats a good car for my need and the answer is as varied as

Suzuki Alto for a small cost effetive 4 seater, to a slightly used Porsche GT3 for this weeks laps around the Nurburgring, to a highly modded GQ Patrol Shorty for next weeks mud and boulder club special, to a Lear 35 if you want fast transport at less than 200 gallons an hour

A good credit adviser will take the time to extract from you your life goals, which you can then work backwards to some property goals and take it from there.

Loans aint loans

ta
rolf


ta
rolf

 

[coolcup69]

What are you paying with UBank now? 5.24% variable?

I'm currently paying 5.17%.

ING have their uses (REF, in particular is quite good as a substitute for LMI)

What exactly is REF?

Also, in relation to redraw vs offset. If I want to buy an investment property in 6 months time and use money from my redraw / offset to fund the deposit - which is the better structure to go with? My reasoning is that either should be OK so long as the PPOR stays as a PPOR and never changes to an IP. Either way I will have to create a loan split that shows the interest on the loan split as deductible investment related interest. Or am I missing something here that gives offset accounts a better standing?

Also, in relation to one of my questions above. If I did choose to refinance my loan and put all my funds in the offset / redraw - would any lenders find that appealing? They aren't making any money out of me or will they be happy to get a new customer who might generate more business for them in the future?

Thanks again for all your help. This discussion has been very informative.

 

[coolcup69]

Your question as to whats a good lender rings like. whats a good car for my need and the answer is as varied as

Loans aint loans

If there is one thing I have learned from you Rolf, it is definitely the above. Thanks for all the tips and help.

 

[Peter_Tersteeg]

What exactly is REF?

Also, in relation to redraw vs offset. If I want to buy an investment property in 6 months time and use money from my redraw / offset to fund the deposit - which is the better structure to go with? My reasoning is that either should be OK so long as the PPOR stays as a PPOR and never changes to an IP. Either way I will have to create a loan split that shows the interest on the loan split as deductible investment related interest. Or am I missing something here that gives offset accounts a better standing?

Also, in relation to one of my questions above. If I did choose to refinance my loan and put all my funds in the offset / redraw - would any lenders find that appealing? They aren't making any money out of me or will they be happy to get a new customer who might generate more business for them in the future?

Thanks again for all your help. This discussion has been very informative.

REF is a substitution for mortgage insurance sometimes used by ING. UBank doesn't write loans above 80% so it's a moot point with them. Given you appear to have a lot of cash available it's not likely to be something you'd need anyway.

Based on you having all the money in the redraw of your PPOR and essentially paid off, you can simply redraw the money and claim the tax deductions. As you mention, if the property will always be your PPOR and the money will only be used for investment purposes, your current structure should be sufficient. I would advise against moving your money to an offset account if you do intend to use it for investing.

The cash you've got available won't improve your affordability, but it does improve your risk profile to the lender. It shouldn't make you a less attractive client.