Warning after Aussie couple has $400,000 drained from mortgage account after single wrong click
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Lendera founder and mortgage broker Vishesh Vasnani said the couple’s situation highlighted why it was important to understand the difference between an offset and redraw. ·Source: Instagram/@vish.lendera/Vishesh Vasnani
An Aussie couple has seen $400,000 drained from their mortgage account after making an accidental “misclick”. It’s sparked a warning for Aussie mortgage holders about the importance of understanding the differences between two similar home loan products.
The couple had recently sold their investment property as they wanted to create an extra cash buffer before the birth of their child and while they were both in between jobs. The problem was, they accidentally transferred the $400,000 payout from the property sale into their redraw account instead of their offset.
The couple’s broker Vishesh Vasnani told Yahoo Finance it was a simple mistake on the couple’s part, but it ended up having disastrous consequences for the family.
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“You would think that once you transfer it to their own redraw account, it would still be available. But the next thing you know, they said they couldn’t access it and it was all frozen,” Vasnani said.
The couple then received communications from their lender, a major digital bank, that their home loan account had been closed.
That’s because the amount they deposited into their redraw account was enough to pay off the outstanding loan balance they had on the home where they live.
“It was literally a misclick that happened. Ideally, they wanted to line things up in their offset, because it would effectively be 100 per cent offset and they don’t pay any interest on [the loan],” Vasnani said.
“But it was a simple misclick that went from one account to another, and rather than the offset, it went straight into their redraw.”
When the couple asked if they could access the cash again, Vasnani said they were told by the bank that they would need to apply to borrow again.
This would involve a full application, including their income, expenses and liabilities, which wouldn’t be feasible given they were both in-between jobs.
“They’re a bit stuck. It’s a really big thing to pay off your home loan, but obviously not ideal in their situation,” Vasnani said.
Both products are used to help reduce the amount of interest you pay on your home loan, but the way they work is different.
A redraw facility allows you access to extra payments that you’ve made on your home loan. It’s not a separate bank account, but instead it’s a feature attached to your home loan.
An offset account is a separate bank account that is linked to your home loan. You can have your wages paid into it and use it for your everyday spending, and the full amount can be accessed at any time.
“The redraw you can classify it as a line of credit essentially because it’s an account, but a lot of people don’t realise that technically it’s a home loan account,” Vasnani explained.
“Every time you take funds out of the redraw, it’s almost like you’re re-borrowing once again, it’s not an offset.”
For example, they may be able to suspend, cancel or limit your redraw if your loan repayments are overdue or if your circumstances drastically change. Others may have wording allowing the bank to “refuse any request for withdrawal at any time” or to “cancel your redraw option at any time”.
ME Bank came under fire back in 2020 after it was revealed it had taken money from some customers’ redraw accounts to pay down balances. It did not warn customers first before doing this, and it meant some 20,000 customers were left without access to their funds.
The bank later pledged to change back its home loan redraw limits for any customers who requested it.
Vasnani said the couple’s situation was “very rare”, but something “people don’t realise” is that banks could technically take your redraw funds and close your account, or withhold a portion of it.
Vasnani said the bank had not provided any explanation as to why it took the couple’s redraw funds, but they believe it was due to their lack of consistent income.
“Their transaction account is where they used to get their income pretty consistently and then they haven’t been receiving income for a while,” Vasnani said.
“But no red flags. You’d expect if something happens where they are missing repayments, or they’re defaulting, or they’re in hardship, maybe there’s fraud, or any other red flags.”
Vasnani said the couple would now need to get short-term help from their family to ensure they could meet their day-to-day expenses, and the husband was likely to go back to the workforce sooner than intended.
“It’s one little mistake and it’s a crazy mistake. The fact that they still don’t know what caused it or what triggered it, they’ve only been able to isolate one thing that they had consistent income previously and now they don’t,” Vasnani said.
“Aside from that, there’s no other reason why, they haven’t been provided a reason as well. It’s a bit of a shame.”
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