Offset Account in YNAB ... and the answer is?

The post today was interesting, but a bit of a tease.  What is the recommended solution?  You really want lots of folks calling customer service to find out?  :^)

 

https://www.youneedabudget.com/can-i-use-an-offset-account-in-ynab/

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  • I don't think there is "a" solution, at least if you want to avoid unnecessary complexity. A UK overdraft is fairly straightforward, but an offset mortgage has a bit more going on.

    I especially enjoyed this sideswipe:

    Consider this: banks wouldn’t offer these accounts if it didn’t benefit them.

    While this is true, it's also true of ANY account, even a normal deposit account like checking. That's hardly a reason to avoid them.

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  • Oh, totally agree.  But there are high-level contours to each financial instrument that makes setting up at least a template to follow somewhat straightforward.  And there's not that much complexity, just layering (tracking account, interest, principal, etc.) and likely not more than 3-4 idiomatic archetypes.

    Surprised YNAB *wants* people to contact them (at cost).  That to me makes no business sense.  At least head of 80% of the common questions in the post.  Then again, perhaps they budgeted for this.

    Vis a vis banks, just like casinos, hard for them to lose.  Though, still worth visiting.

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    • WordTenor
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    Yeah, wow what a phenomenally unhelpful blog post. Credit cards can get you in all sorts of financial trouble also, and there's a whole special facility for them in YNAB. 

    Also man. It looks like they actually removed the blog post from Ian from 2013 which showed how to handle an offset and redraw. It links to this article now instead. That's....a choice....

    As I recall the gist of it was that you needed to have your mortgage set up as an LOC account, on budget, and the offset facility set up as a checking account. But I think for redraw accounts, there was a third account a la what @dakinemaui describes above for UK Overdraft. But I don't remember and now it seems it's gone. 

    ETA: and weird, the Wayback Machine doesn't seem to have it, either. The Wayback is showing me today's page. I wonder how they did that. The date that is hovering around is April 7, 2013. 

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  • From the post "Australians and Canadians have “all-in-one” mortgages,"

     

    Um, no that's not correct for Canada, at least.  I think they are talking about a collateral mortgage. I learned about these last time we did our mortgage. In Canada, we don't have 30 year mortgages like the US. We can amortize the mortgage over 30 years (or 25, or 15, or whatever) but we sign up for a contract term during which the rate and the terms like prepayments are set. For example a 5 year term.  This would be called a 5 year mortgage amortized over 30 years (for example). When the 5 years is up, you have to renew or refinance with either the same lender or a new one. Usually this renewal or refinance is pretty straightforward and there are minimal legal and bank fees which the new lender will generally cover. EXCEPT for a collateral mortgage.  These usually come up on renewal/refinance when the house you still live in has gone up in value. Say the original house price is $500K and you borrow $300K to buy the house. After the terms is done, you refinance. You still owe $250K on the mortgage. But the house is now worth $700K.  So what the lender will offer you is a mortgage up to 80% of the value of the house ($560K) of which $250K is used to pay off the prior lender. The difference ($310K) is a secured line of credit that you can tap any time you want. Yay! NOT.  When that term is done, and you want to refinance with a different lender, you can't just port the mortgage to the new lender. An entire new mortgage needs to be written with the accompanying legal costs which the new lender generally won't cover because they can be several thousand dollars. Here is a link to an article about this:

     https://www.thestar.com/business/2015/02/17/a-collateral-mortgage-can-trap-you-roseman.html

     

    This article is a few years old and you can find articles that are "pro" collateral mortgage as well but we found that we prefer to keep our mortgage separate from any borrowing.  

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    • MXMOM I've definitely worked with Canadian customers that have Australian-style offset mortgages through Manulife!

      dakinemaui UK overdraft and offset mortgages are the same as far as the budget is concerned: both involve a negative-balance spending account. The size of the negative balance and the collateral are different, but they can be set up identically in YNAB if you know what you're doing.

      When we said "banks wouldn't offer these account if it didn't benefit them," what we mean is: when you encounter a complex financial product, the complexity is never there to benefit the consumer. (Hat tip to writer Larry Swedroe, who says something like this often.)

      Offset accounts present much greater risks than credit cards, both financial and behavioral. The financial risk is greater, because the collateral is your house. The behavioral risk is also greater, because the line between your money and the bank's money is erased.

      So there are several reasons we want people to contact us before setting up one of these accounts. As Saish Dawg mentioned, there are several archetypes for this type of account arrangement, and customers often don't know which one they have, and we only support some of them.

      This blog post is the tip of an iceberg of vastly improved internal support materials that help us identify and walk customers through implementing common offset account scenarios. So don't worry—we're more ready for those support requests than we've ever been. (In fact we're ready for anyone to get in touch with a problem that doesn't involve Plaid and Capital One 😁.)

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      • WordTenor
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      Matthew The issue is that even if your house is collateral, and even if you've quasi-mingled your money with the bank's, the whole point of YNAB is to make clear what is yours and what is usable. If there was any safe way to have a mortgage redraw account, using YNAB is that safe way. I would be happy to have a mortgage redraw account because I am confident I could set up YNAB such that my Rule 2 funds were technically offsetting the mortgage but that I always knew how much money was mine. 

      I'm actually more concerned that I can't dig up the post from 2013. Has everything useful from the YNAB 4 era been totally wiped? Because that is terribly sad; the support materials and blog content then were based so much more on "here's how to get good with money" and less "here's how to use our software." 

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  • Matthew said:
    I've definitely worked with Canadian customers that have Australian-style offset mortgages through Manulife!

    My bad. Ah yes. The Manulife  One product. I forgot about that one.  I think they’re the only company that has launched that product in Canada. I recall when it first launched years ago. It was mind boggling. But they present it in simplistic manner. And actually our financial planner suggested it for us since we have cash on hand. We declined. I like to keep my things in their own lanes. 

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  • I'm in Australia. I have a mortgage and all my cash accounts offset my mortgage.

    The post says:
     "However, that account is always negative until you pay it off, so it is technically a negative balance spending account. "

    Umm, nope. My cash accounts were normal checking and savings accounts before my mortgage with positive balances. After the mortgage (which is a negative account like everywhere), my balances on my cash accounts stayed the same. Except:

    •  the money in effect reduces the amount owned in my mortgage
    • the savings account doesn't earn interest anymore.
    • the interest rate on my mortgage is higher than without the offset accounts.

    I don't disagree one could have HELOC or their equivalent, but that's not what the typical offset accounts in Australia are like.

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    • Ceeses But in that case, there's no issue with setting up the account arrangement in YNAB, because there's nothing special to set up!

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      • Ceeses
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      Matthew I agree. I just left this in case the blog post "worried" some Australians starting out with YNAB.

      But I should have finished the post by stating there was nothing special to do with YNAB in the case of offset accounts I described. I forgot with all the distractions of kids at home.

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