Currently I have PI loans with offset account. Each fortnight my bank automatically takes the repayments from the offset account. This is naturally the same amount each time unless we have an interest rates rise.
I am thinking of changing to IO loan with offset account ( I think that's possible with the ANZ) but have a silly question as to how it works.
Does the bank calculate how much interest you need to pay each fortnight and then automatically only take this amount out of the offset account? The problem being that the amount will vary each time depending on how much you have in the offset account and I'm wondering if they cope with that?
The other option I guess is that they calculate the interest on the loan at the beginning and then always take this amount even if in fact you owe less interest because you have funds in your offset account. This way you would, I assume, be paying off a little principle each time?.
Thank you in advance
ElkaHi Elkam. It works exactly like a P&I with offset account, in that the amount of interest you pay is calculated on the loan balance, less the amount in your offset account. For pure ease of explanation – it would be like having a I/O loan for say 100K, and if you put 5k in extra as 'redraw', then you pay I/O on 95k. Offset is different way, but end payment caluclation/results same, as long as it is 100% offset. SOme banks inc the one you mention have to have a min. amount in the account first before offset is 'invoked', thouugh. All the best.
You can have IO with 100% offset with ANZ. Monthly interest will vary depending on the balance of the offset account and they will be able to take this varying amount each month from the offset.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Got it. Thank you both.
Cheers
Elka
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