How safe are your redraw funds?

The (very) important difference between a rebate and offset account.

Have you diligently squirrelled away savings, paying down your loan by putting extra funds directly onto it? You probably think, like most people, you can access these funds through the redraw function on your loan any time.

However, this may not always be the case. The redraw function on loans is just that, a function, that can be removed by the banks. As seen recently by ME Bank, who absorbed savings deposited on loan accounts and removed the ability for customers to withdraw funds using rebate. This was a blanket change; customers did not have to be in arrears. Banks generally do this due to avoid liquidity issues.

An offset account is a transaction account separate to your home loan. The money you deposit into an offset account can not be touched by the bank.

However, in times of uncertainty especially if people get into arrears an offset account at the same lender can still be accessed. Lenders under the ‘all monies’ clause (buried  in your home loan contract – What?! You didn’t read it….) have the right to transfer cash from any other account to balance out arrears.

The moral of this post -

1. If you are genuinely paying extra off your mortgage, you are probably not worried about using the rebate anyway.

2. If you have savings in a rebate account be aware that your lender can take those funds.

3. One way to protect extra funds is to put them into an account at another bank where you have no debt.

If you’d like to discuss your loan structure or situation please email me - hello@blueoceansfinance.com.au or call 0408 940 560.

Know the difference: rebate v offset accounts