In Australia and the United Kingdom, it is common for home loans to come with an offset account. The balance of the account is “offset” against the loan when calculating interest, so the borrower saves more money than they would earn if the cash was held in an ordinary bank account, while retaining the ability to withdraw the cash on demand.
If the home loan is provided by a non-bank lender, the offset account is “not covered by the [Australian] government’s financial claims scheme, which guarantees traditional offset accounts up to $250,000 if bank lenders fail.”
What would actually happen if you had a $500,000 home loan from a non-bank lender, with $250,000 in your offset account, and the lender became insolvent?
Could the receivers demand repayment of the full $500,000, leaving the borrower exposed to a potential $250,000 loss with the lender’s other unsecured creditors?
Or would equity prevent the receivers from recovering more than the net balance of $250,000, effectively granting the borrower priority over the unsecured creditors?