Forums / Getting Technical / Finance / Equity cash out, placed into PPOR loan account?.

Viewing 19 posts - 1 through 19 (of 19 total)
  • Profile photo of SimonSimon
    Participant
    @simon1313
    Join Date: 2017
    Post Count: 59

    Hi All

    I have just had my refinance come through. The equity cash out was directed to be placed in a separate offset account against itself to draw on. It has just all come through & it has landed in my variable PPOR home loan account.

    I have read on here that the cash out should sit in a separate account & serve no other purpose than the investment purpose, eg don’t sit it in a offset against PPOR?

    Bank was unable to tell me how or why the funds landed there. They just sad if its an issue they can reverse any interest offset that has occurred.

    How much of an issue is this & what is the best way to deal with the situation?

    Thanks

    S

    Profile photo of BennyBenny
    Moderator
    @benny
    Join Date: 2002
    Post Count: 1,325

    Hi Simon,

    Sheesh, some Banks are good for nothing !!

    It has just all come through & it has landed in my variable PPOR home loan account.

    So, have they (or you) OPENED an Offset Account against any Mortgage account? Or is there still NO Offset Account at all? That is so slack – but can be quite typical of some banks (have had quite some arguments with one or two….).

    I don’t have enough knowledge to know just how bad any ramifications might be, with having the money appear in your Home Loan account like that.

    I would HOPE that the error can be shown to be not YOUR error, and the situation put right quickly. One of our financial types would likely be able to offer some good ideas around that kind of thing. They often have to direct banks on behalf of their clients (even teaching them to suck eggs at times, from what I hear…) ;)

    Benny

    Profile photo of SimonSimon
    Participant
    @simon1313
    Join Date: 2017
    Post Count: 59

    So, have they (or you) OPENED an Offset Account against any Mortgage account? Or is there still NO Offset Account at all?

    Hi Benny

    Not one but two offset accounts were opened. One against the PPOR loan & one against the IO cash out for investment purposes loan. The cash landed in the actual PPOR loan account, bypassing both offset accounts to sit in & reduce the balance of the home loan.

    So I have effectively taken out a IO equity loan at a higher rate to pay down my mortgage, against the same property.

    Wow.

    S

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,110

    You have tax issues.

    Where did the money come from? Was it a new split loan? Give me some figures as an example and i will tell u how to fix it.

    Terryw | Structuring Lawyers / Loan Structuring Pty Ltd
    http://propertytaxbook.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of SimonSimon
    Participant
    @simon1313
    Join Date: 2017
    Post Count: 59

    Hi Terry

    Thanks for the reply.

    Refinanced PPOR 420k into two loans + a separate equity release.

    So accounts should look like this

    1, -$220,000 V
    2, -$200,000 F
    3, -$53,600 IO
    4. $00,00 (offset acc 1)
    5, $53,600 (offset acc 3)

    Instead they look like this

    1,-$166,400 V
    2,-$200,000 F
    3,-$53,600 IO
    4, $00,00 (offset acc 1)
    5, $00.00 (offset acc 3)

    I hope that explains things clearly.

    Thanks

    S

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,110

    I am not sure I understand that.

    have $53,000 been borrowed by slitting the $220k loan and into 2 with the $53k split being paid into an offset?

    If so simply pay back hte $53k loan and reborrow again at the time you wish to invest. Pay directly from the loan account or set up a new offset account empty of funds add transfer the borrowed money there temporarily to pay out to the investment. Make sure paying the $53k back doesn’t close the loan. If it does you should pay it back less a small amount and then claim 99% of the interest.

    Terryw | Structuring Lawyers / Loan Structuring Pty Ltd
    http://propertytaxbook.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of SimonSimon
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    @simon1313
    Join Date: 2017
    Post Count: 59

    I am not sure I understand that.
    have $53,000 been borrowed by slitting the $220k loan and into 2 with the $53k split being paid into an offset?

    Hi Terry

    No the 53k is not a split on the 220k. The -220k & -200K are my PPOR loan Split fixed & variable. The 53k is a equity cash out on a revaluation of the PPOR. My total borrowing against my PPOR is now 473k divided into three separate loans.

    the 53k is its own loan, taken out IO & at a higher interest rate as it has been classified as for investment purposes. It has a offset account that the funds should have landed in or been directed too at settlement.

    Upon settlement they directed the 53 into my PPOR variable account ($-220k) instead.

    S

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,110

    My response still applies to this. Just pay it back into the loan and reborrow when investing.

    Terryw | Structuring Lawyers / Loan Structuring Pty Ltd
    http://propertytaxbook.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of SimonSimon
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    @simon1313
    Join Date: 2017
    Post Count: 59

    Now I’m not sure I understand?

    have the finds redirected back to the -53k or just move it to the offset & reverse any reduced interest resulting form the funds sitting in the PPOR account.

    The second option is what the bank is suggesting.

    Thanks for your responses, I really appreciate it.

    S

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,110

    Ignore what the bank is suggesting they will make things worse.

    You need to pay off the loan and reborrow.

    Terryw | Structuring Lawyers / Loan Structuring Pty Ltd
    http://propertytaxbook.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of SimonSimon
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    @simon1313
    Join Date: 2017
    Post Count: 59

    Thanks Terry, I will get on to my broker this morning.

    Profile photo of SimonSimon
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    @simon1313
    Join Date: 2017
    Post Count: 59

    Ignore what the bank is suggesting they will make things worse.
    You need to pay off the loan and reborrow.

    Ok, so this is what I have done, I moved the 53k back into the IO loan (effectively paying it back) & then drew the 53k directly into its own offset account where it will sit until settlement of the IP next month.

    Problem solved?

    Thanks Terry

    S

    Profile photo of Corey BattCorey Batt
    Participant
    @cjaysa
    Join Date: 2012
    Post Count: 1,010

    Cycling like that will help – ideally so long as it doesn’t auto close your account (some lenders will close accounts if they are paid down automatically), keep the funds in redraw up until you are about to settle and then transfer direct out of the loan account to the third party handling your settlement. (solicitor etc)

    Corey Batt | Precision Funding
    http://www.precisionfunding.com.au
    Email Me | Phone Me

    Investment Focused Finance Strategist - servicing Australia-wide

    Profile photo of SimonSimon
    Participant
    @simon1313
    Join Date: 2017
    Post Count: 59

    Thanks Cory.

    I phoned the bank and explained what I wanted and how I wanted it done. They were able to do it with out closing the account & there is a clear trail of movement on all accounts.

    He did seem a bit miffed that I wasn’t happy with him moving the redraw from the PPOR to the IO offset.

    They continue to claim it must have been where the broker directed the funds, so off to talk to them now.

    Good lessons to learn however unnecessary & frustrating.

    Cheers

    S

    Profile photo of Corey BattCorey Batt
    Participant
    @cjaysa
    Join Date: 2012
    Post Count: 1,010

    Pretty normal for them to deflect blame – it’s very common for the settlement teams to just plonk the funds anywhere. Generally not the end of the world and can be resolved – just a little tedious.

    Corey Batt | Precision Funding
    http://www.precisionfunding.com.au
    Email Me | Phone Me

    Investment Focused Finance Strategist - servicing Australia-wide

    Profile photo of BennyBenny
    Moderator
    @benny
    Join Date: 2002
    Post Count: 1,325

    Hi Terry,
    Your words here reminded me of something that you have warned of in the past:-

    Ignore what the bank is suggesting they will make things worse.
    You need to pay off the loan and reborrow.

    I think the words went something like “Don’t take funds out of an Offset account to become a Deposit on an IP. Instead, use those Offset funds to pay down a Loan, then BORROW extra from that Loan as needed.”

    Something to do with keeping $$ tax deductible, wasn’t it? I think your words above were suggesting that Simon do NOT put funds direct into the Offset – but I am not sure if that was in answer to his original problem, or as a “by the way” comment re Tax Deductibility.

    The linked post below relates to “Mixing of Loans” and how we must be careful just HOW we access the equity (from which loan – and/or from which Offset??)

    https://www.propertyinvesting.com/topic/4997918-redraw-from-an-offset/#post-5029521

    But wasn’t there something else re “Not taking funds straight out of an Offset account for Deposit/Costs” – could you clarify that for Simon please? Especially in relation to his current moves. i.e. Should he pay back that new Loan and only draw on it once it is time to settle on the new IP? Should he NOT use the Offset right now, except if he has his own spare funds?

    Benny

    Profile photo of SimonSimon
    Participant
    @simon1313
    Join Date: 2017
    Post Count: 59

    Hi Benny

    I believe I am across the potential offset issues.

    Just to draw a clear picture (I possibly should have done this at the start)

    This is a refinance PPOR with a new lender, so no other money whatsoever, savings or wages go near it at this point in time.

    There are two offset accounts & a loan split 3 ways.

    One offset account sits empty awaiting me to place funds at a later date against my PPOR.

    The other offset account is against the IO split of the loan for the $ to sit in and not cost me interest until settlement of the IP. This is were the money should have landed at settlement (of the refinance).

    Am I correct in guessing you are suggesting I would run into further trouble if I put the IO funds in the offset against my PPOR? That is what I am picking up from your post? My understanding is even if the account was empty the offset interest would have the loan no longer solely for investment use, not good. If I mixed the loan with existing money in the PPOR offset it would be a bigger mess.

    Thanks all

    S

    Profile photo of BennyBenny
    Moderator
    @benny
    Join Date: 2002
    Post Count: 1,325

    Hi Simon,

    Am I correct in guessing you are suggesting I would run into further trouble if I put the IO funds in the offset against my PPOR?

    That is a good thought, and that might be quite right – but really, it was an earlier comment from Terryw that I wanted him to clarify (and this goes back some time too – but could also be related to your situation). The words I thought I recalled went something like “Don’t pull the money out of the Offset when you want to use it – instead, use that cash to pay down a Loan, then borrow directly as a separate Loan, not from the Offset”.

    Now, it appears you HAVE DONE something like that by creating a separate loan. The only difference is that you drawn down that loan already, and the settlement is still a month away. Terry’s words MIGHT have indicated that you should pay back the money INTO the Loan and NOT draw it down just yet…..

    …..OR, I might have mis-interpreted him completely. I don’t know.

    Sorry for adding doubt, Simon – but I wanted you to be sure before things went pear-shaped (and I could do with knowing more about it too – and that is where Terry comes in),

    Regards,
    Benny

    Profile photo of SimonSimon
    Participant
    @simon1313
    Join Date: 2017
    Post Count: 59

    Hi Simon,
    Sorry for adding doubt, Simon – but I wanted you to be sure before things went pear-shaped (and I could do with knowing more about it too – and that is where Terry comes in),
    Regards,Benny

    Haha, all good Benny, I am enjoying learning more about it all.

    So another option could have been to just leave the funds in the loan account? Would this be more like a line of credit?

    Cheers

    S

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