Interest only loan repayments with an offset account.

In short

The loan is an interest only loan and therefore the loan repayments will vary depending on the number of days in the month but the principal debt will stay the same. Interest will only be charged on the $20K rather than the full $100k being interest only.

There is the odd lender that still charges interest on the full debt in this case $100K and then has the interest on the $80K is treated as an advance repayment.

If the loan was P & I then of course it would be different and your calculations would be correct.

Reading your first post it sounds like you have a 30 year P&I loan not an interest only loan- which bank is it?

If you have a 30 year loan you will have a set repayment over 30 years to clear the debt. If you put in extra cash you can redraw to where you would have been if you made your standard repayment. Therefore think of your balance plus available redraw as your limit:- it is this limit that your repayments are set on (noting you can redraw to this point at any time).

If your loan is paid by direct debit; ring the bank and tell them you will make payments manually. Most lenders don’t need repayments if you are ahead (accept lenders like Westpac whocall it a repayment holiday and promote it as a feature). Therefore you can simply recalc your own repayments with a loan calculator to recalc the original term based on the balance rather than the limit.

Of course other option is it could be one of the Credit Unions and a few of those offset interest on quarterly rests so have to wait to the end of the quarter to gain the benefit.

Unlikely but as Banker menioned we need the lender to advise further.

Dan,
I found myself in a very similar situation recently – I am also with St George.
I asked my broker to explain and they told me this:
"I/O payments are always based on the loan balance, regardless of the offset balance. Effectively this means when you have cash sitting in offset, the “interest only” payments that are automatically debited from the offset a/c will not change, instead they will actually repay a small portion of principal (that is, the portion that you have “saved”)"

Dunno, but maybe rather than the bank adjusting your repyaments as your remaining principal of the loan gets reduced, they just keep your repayments the same and it is the term of the loan that gets reduced.  Like people say put in a little extra each month and you reduce the loan by so many years (pay it off ahead of time), rather than the bank keeping the loan term the same and just reducing your require monthly payments as you get ahead…  

so to put it more clearly, it might be the loan term rather than the repyaments that reduces unless you somehow specificly ask the bank to recalulate your monthly payments if its not doing it automatically??  As Benno above says maybe the banks are not inclined to vary the repayments during the life of the loan unless you get into some financial dificulty….

Is ANZ Simplicity Plus in the same category?
Have just taken out this new loan with ANZ interest only 30 yrs terms. A fairly big loan. 
Have made additional deposits to the loan to lower the monthly repayment.
Question is will the monthly repayment change or will it be based on the original amount borrowed?

Thank in advance.

I think we had all figured it was The Dragon.

i have one of those products with westpac, and i beleive there is no minimum balance requirement on the offset. I also use their card, altitude, which includes an AMEX card with double points (but not many accept amex these days). This gives me a lot of points which i mainly use to get gift vouchers which more than covers the annual fee.

Probably will only help a lot if you are spending mega bucks.

assuming you spent $2000 per month, at 7% the annual interest would be $140, so the daily interest would be about 38c, so having the $2000 in your offset account for an extra 10 days may only save you around $3.8 per month.