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? :^)
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.
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.
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.
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:
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.
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.
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.