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Reducing home loan limit
Do people do this?

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18 replies to this topic

#1 Ally'smum

Posted 31 January 2013 - 12:19 PM

I have a home loan with Westpac and we have some extra money in the loan as well as money in an offset account. I am worried about our ability to save, we seem to always be dipping into the offset, so I was wondering if I could pay extra money into the loan, then reduce the loan limit so it wouldn't be sitting there for us to access.

Does anyone else do this? How often can you do it? What is a reasonable amount?

If I reduced the home loan by $1000 each month, then called the bank to reduce the limit, would they get annoyed?

#2 JustOneMorePlease

Posted 31 January 2013 - 12:46 PM

Someone will correct me if I'm wrong but I'm pretty sure you can't change your home loan limit.

#3 MrsLexiK

Posted 31 January 2013 - 12:46 PM

sorry OP just wanting to clarify - are you talking about paying x amount off and then refinancing your loan (so say you have paid $70K off a $200K mortgage including all your monthly repayments you then get a loan for $130K thus reducing your repayment amount)

or are you asking whether you put say $10K into the loan in advance and reduce your mortgage repayment each month by $1000 until the $10K in advance is no longer in advance? (so your monthly payment is made up of $1000K from the advance figure and $300 from your own money)

#4 Acidulous Osprey

Posted 31 January 2013 - 12:50 PM

Without a whole new mortgage and the costs associated with that I don't think you can.  Mortgages are calculated across the life of the loan, they don't work like credit cards.

#5 Ally'smum

Posted 31 January 2013 - 12:53 PM

I meant that if we owe $350k and I pay $10000 into the loan, then call the bank and reduce the loan to $340k.

That way the money isn't sitting there to be redrawn (and our monthly repayments could be reduced to reflect the new amount outstanding over the term of the loan).

Not refinancing as such, just as you can call them and ask to 'top-up' or increase the limit, I was wondering if you could decrease the limit.

Trying to get our debts down...

#6 laridae

Posted 31 January 2013 - 12:54 PM

I put extra on my loan & just don't redraw it.  So its still available in case of emergency - but not as accessible as the offset.

I think you can call them & get them to re-calculate the repayment based on what you paid off already.  I know they recalc the repayment when I redraw (which I've done once for a specific purpose), and they can do it if interest rates drop if you ask (which I've also done - as it was up around 8.5% when I first got the loan).

You can still redraw though - it doesn't affect the actual value of the loan, they just put repayments up again if you do redraw.

Edited by laridae, 31 January 2013 - 12:58 PM.

#7 Bluenomi

Posted 31 January 2013 - 12:56 PM

Coudn't you just get rid of the redraw facility? That would be much easier.

#8 EmAyEm

Posted 31 January 2013 - 12:56 PM

Yep, just get rid of the redraw/offset.

#9 Let_it_Rain

Posted 31 January 2013 - 12:57 PM

I suspect that an offset account may not be the best option for you.

An offset account is fine to draw from (not really redrawing), that is the purpose, put as much money in there to reduce the interest you are paying day-to-day. It's why they are often  used in conjuction with credit cards.

If you want to actually pay additional into your loan you can request the bank capitalise the payments which will reduce your required repayments, but not the loan amount as such.

I would suggest talking to the bank and seeing what they suggest, you are probably paying fees for the offset while not using it to the best advantage.

#10 Therese

Posted 31 January 2013 - 12:58 PM

I would just get rid of the redraw option.

#11 MarsBarSlice

Posted 31 January 2013 - 12:59 PM

Why don't you get a loan that doesn't have a redraw facility and that way you can put extra on the loan and it stays there and you can't touch it.  You can't change the principal amount of the loan unless you refinance for a different amount.

#12 Ally'smum

Posted 31 January 2013 - 01:04 PM

Yes getting rid of the redraw would be the solution, thanks EB! original.gif

#13 MrsLexiK

Posted 31 January 2013 - 01:06 PM

QUOTE (loggedin @ 31/01/2013, 01:53 PM) <{POST_SNAPBACK}>
I meant that if we owe $350k and I pay $10000 into the loan, then call the bank and reduce the loan to $340k.

That way the money isn't sitting there to be redrawn (and our monthly repayments could be reduced to reflect the new amount outstanding over the term of the loan).

Not refinancing as such, just as you can call them and ask to 'top-up' or increase the limit, I was wondering if you could decrease the limit.

Trying to get our debts down...

Even when you increase the loan you refinance though (unless you have money sitting there in advance and you use less then that amount.)  I would perhaps look at a loan without the offset, but with a redraw which you need a minimum to redraw.  Mine is $2K in advance to redraw, so we would only dip into it if we really really had to (unlike when I dip into our savings because $50 here or there doesn't seem like much) You will also get a lower interest rate but if you keep up your monthly repayment by what you are paying now you will pay it off quicker.

#14 justnotfeelingit

Posted 31 January 2013 - 01:10 PM

You can do that (pay say the $10k to reduce from your $350 to $340k), its called a capital reduction - I'm guessing not all banks will do it, ours did (Heritage) - we've done it a couple of times actually.

Worth a call to the bank.

ETA that you may need to have those funds already 'in advance'.

Edited by itsmemacdolby, 31 January 2013 - 01:12 PM.

#15 ~*MissPriss*~

Posted 31 January 2013 - 06:16 PM

Westpac will do this, and your repayments will just be re calculated based on the new loan limit. I don't believe there are any fees to do this.

#16 Babetty

Posted 31 January 2013 - 06:31 PM

We have done a 'capital reduction' too - put in a lump sum and they reduced the loan and recalculated the repayments. This was with St George. It was not a refinance.

Go and talk to your bank and discuss options - whether removing the redraw facility or doing a capital reduction is right for you. If you're only doing $1000 at a time, they probably wouldn't want to do a capital reduction every month. I think we paid a $100 fee for it too. Our capital reduction was something like $120 000 (sold our previous house) so it was very much a one-off thing.

#17 Juki

Posted 31 January 2013 - 06:40 PM

Hi op, you can reduce the limit, just call 132558.

Just check when you are on the phone that there is no penalty for paying down the limit (some loans have a fee for payments over $15k).

I personally wouldn't get rid of your offset account as there is no cost to have this account, even if you have  a few dollars in the account, it can save on some interest. If you do choose to reduce the limit, keep in mind that redraw is a handy thing to have in case of a rainy day even if it is only a few hundred dollars.

Furthermore, keep in mind that if in the future you would like to access the equity in your house, if you need to increase your limit it will likely be subject to new application and revaluing your house. This doesn't normally happen immediately.

Other tips I can think of is don't have card access to the offset account, you can change your card access at the branch. If you have any questions aand don't want to talk about it all on the phone, make an appointment at your nearest branch and hey can help you through it.

Edited by Juki, 31 January 2013 - 06:41 PM.

#18 Kitty Fantastico

Posted 31 January 2013 - 06:47 PM

I'm not sure about westpac, but we did that with our home loan provider Ubank. We put in an extra 30k and had them recalculate the loan which resulted in a lower weekly repayment. It's still technically there for us to redraw, but not without contacting the bank first - so there's no temptation to spend it.

There was no fee for this service.

If you want to put extra away, I'm not sure if they'd do it regulary for small payments, but if you have the discipline, you could save 5k and get them to recalculate the loan from time to time.

#19 newphase

Posted 31 January 2013 - 09:21 PM

Yes getting rid of the redraw would be the solution, thanks EB
BUT you can reinstate it at anytime also, so unless you get a product without redraw as an option, or a minimum redraw amount of a few$$k to stop willy, nilly redraw then it isn't really worth it, but having to reinstate it would take time which may stop impulse redrawing!

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