Jump to content

Using the redraw on a mortgage as your savings account?


  • Please log in to reply
30 replies to this topic

#1 audrey09

Posted 25 November 2012 - 09:11 PM

I'm confused!

I will have a mortgage soon and have been told by many people that it's best to put all your extra savings onto your mortgage and then you have access to the extra money you have added from the redraw. So it's there when you need it. Like a savings account. Of course with the right mortgage.

Does this defeat the purpose of paying more off your mortgage in the first place if then I will go into the redraw and take out what i need? Would I be going backwards and be undoing all the interest savings I've made once I withdraw the money?

I'm asking this because if I use my mortgage as a savings account also, that money is being saved for a purpose so it's going to be withdrawn at some point....could be 1 year or 2 or whatever.  
So is it better to have a specific savings account instead or is it better to put it on the mortgage to save interest even though you know that money is only sitting there temporarily?

Hope this makes sense!!


#2 katrina24

Posted 25 November 2012 - 09:18 PM

There are lots of different ways to set up a mortgage. I would seek some advice from the bank or a professional about your specific situation.

We use a line of credit (which is part of our mortgage) as our everyday/savings account. Lots of people have an offset account - while the money is in there it reduces the interest paid.  



#3 pitzinoodles

Posted 25 November 2012 - 09:18 PM


If you put all your savings into the mortgage, you will save interest for the whole time it is in there.

Assuming you don't get charged fees to get it out, and you can't get a better interest rate on a term deposit (you won't!) then you will be better off.

As an incentive, it is harder to redraw, than just take it out of an ordinary account, so hopefully that will prevent you spending it till you really need to.

#4 Julie3Girls

Posted 25 November 2012 - 09:24 PM

If the money is sitting against your mortgage, for that time, you are saving yourself interest on the mortgage.

Most of the time, the amount of interest you save if a fair bit more than the interest you would earn in a savings account.
The interest on a savings account is usually a very low percentage, and it's also taxable income.

Once you redraw the money, yes your interest payments will go back up a bit because your mortgage has gone back up. But you have still saved yourself money in the time it was in there.

We have an offset account, which I like. The mortgage payment still gets made directly to the mortgage account, but everything else goes into the offset account. Which reduces the amount of interest we pay on the mortgage. And we can treat the account the same as any other saving account.

#5 audrey09

Posted 25 November 2012 - 09:25 PM

Thanks Guys I will definately be getting proper advice. I've spoken to my broker about it and i'm looking into different home loans with this lender.

Pitzinoodles, that's what I don't understand. I know interest is being saved while the money is in there BUT what happens when it's time to take that money out for whatever it is that you've been saving for?
Do you go back to square one?

#6 SeaPrincess

Posted 25 November 2012 - 09:25 PM

You can only redraw extra payments.

While the money is in the mortgage, it is reducing your interest.  If you haven't paid any extra, you can't redraw.

We have both a free redraw facility and an offset account. We pay extra each fortnight into the mortgage, plus whatever is in our normal account is also offsetting the interest on the mortgage.  I like to transfer money to the mortgage and keep the redraw amount going up, but this way, no matter where the money is, it is working for us.

R

#7 harryboy

Posted 25 November 2012 - 09:31 PM

You should pay exactly what you have to off the mortgage and build up the rest in an offset account, especially if in the future this property becomes an investment not your place of residence. As PP said, money is still working for you in offset.

#8 Foogle

Posted 25 November 2012 - 09:33 PM

There is a difference between an offset account and a redraw account.  From a tax point of view they are treated differently. Talk to your financial advisor about which would suit your situation better.

I've done a quick google and found this report about the difference.






#9 Feral Nicety

Posted 25 November 2012 - 09:36 PM

Interest is calculated daily on your mortgage account so every day you have extra money in there the interest is less.  Once you take the  money out the interest is calculated on the new balance.  It does not reset and you are not penalised.

Just understand that it is the daily balance that is what matters.

#10 BetteBoop

Posted 25 November 2012 - 09:36 PM

We have a mortgage with a redraw facility. It simply means you can pull back any money you've paid above the minimum amount for that time.

So if you pay $100 pw extra on your mortgage, after 1 year you will have an extra $5200 in mortgage repayments that you're allowed to redraw.

We also have an offset account. All of our income goes into this account and the account balance directly offsets how much money we pay in interest on our mortgage.

I recommend both products. They're the most popular options, but a redraw facility can get you into real trouble if you're not good with money. The money is just too easy to redraw.

#11 jayskette

Posted 25 November 2012 - 09:42 PM

specific savings account  vs redraw is just like paying off debt off 1 credit card (highest interest rate) completely first vs paying a bit of debt off each of your credit cards. In both cases, one option is clearly the smarter/more logical choice, but the second one may be psychologically better for some people's mindsets.

#12 intd242

Posted 25 November 2012 - 09:44 PM

I'd go with the offset ... if you put all your savings into the loan expecting to use the redraw and you end up turning it into an investment property it can get messy!!

#13 audrey09

Posted 25 November 2012 - 09:45 PM

There are things that I'd like to save up for like holidays, education costs, maybe renovations etc.
I will be needing to redraw this money out because it is being saved up for a goal, not just to sit there forever unfortunately!

I'm a single parent too so it's only my wages going into the account.
When people talk about redraw accounts they sound great but the thing is I WILL be redrawing this money if I use it as a savings account because I'm saving for something.



#14 PatG

Posted 25 November 2012 - 09:48 PM

I have no intention to turn my house into an investment and I have a no fee redraw loan.  I pay my credit card out of it each month and so far that has been the only redraws but I know i have a stack of money there I can use if I suddenly need a new fridge or repairs on the house.  I wish I had an offset account though because I have to keep money in my transaction account ready to pay the obligatory mortgage payment each week and that isn't decreasing the interest in the days between pay day and mortgage repayment day.  I'm with Commbank and they don't offer a real offset account.

#15 intd242

Posted 25 November 2012 - 09:51 PM

I had not intention to turn my house into an investment either, but things do have a tendency to change. On reflection, I should have gone with an offset.

#16 soapy

Posted 25 November 2012 - 09:57 PM

If we have money sitting in our accounts I put them onto the mortage. Keep a spreadsheet the savings you have put in there so you know what's what.

#17 bluedragon

Posted 25 November 2012 - 09:57 PM

Any extra money in either an offset account or available for redraw is reducing the amount of interest you pay while it's there. So you can think of it like the extra interest you would have paid if the additional money wasn't there has been paid off the principle instead. This in turn reduces the amount of interest paid in subsequent payments.

So even if you take the money out at some point the benefit of having it there for that time continues and you will always be better off.

#18 Overtherainbow

Posted 25 November 2012 - 09:59 PM

If you have $10 000 in savings sitting on your mortgage or in an offset account, you'd save $50 per month (at 6%) until you withdraw it.  You will not be paying any tax on that $50 and there are few savings accounts offering %6.

Negative, easy to withdraw, if you have it as an investment later savings may be better elsewhere, you may have withdrawal fees.

#19 bailee

Posted 25 November 2012 - 10:10 PM

QUOTE (intd242 @ 25/11/2012, 10:51 PM) <{POST_SNAPBACK}>
I had not intention to turn my house into an investment either, but things do have a tendency to change. On reflection, I should have gone with an offset.

To this and those posts saying you should get an offset account, redraws are not fixed in stone. You can redraw the balance and start from scratch without any dramas. It is not hard. And while  some people go from a home loan to an investment property, most do not, it is hardly a reason to recommend an offset account over a redraw facility.

We use a redraw facility and it works really well. I share my loan with my sister not a partner so an offset account is not suitable for us. We started with only $20 extra per fortnight by rounding up our repayments. Interest rates went up at one point and we have kept up that maximum payment amount now for a few years so we are no well ahead. Each dollar in the mortgage saves us interest each month. So as you reduce the principle you reduce the interest you and and tht difference further reduces your principle and increases your extra payments. We redraw for all sorts of reasons. We don't have a minimum redraw amount or fees to pay so ours is really flexible. We have never had to redraw everything in there, there is always more than we need because we re constantly saving on interest payment. There is no disadvantage to this option unless you have penalties, such as high redraw fees, high minimum redraw amounts or a higher interest rate for the privelidge (but we dont have any f that).

Sorry about errors, dumb iPad.

Edited by bailee, 25 November 2012 - 10:13 PM.


#20 audrey09

Posted 25 November 2012 - 10:16 PM

Initially there won't be large amounts like $10,000 sitting in there. I will work towards that by paying more with time.

I wasn't sure if the benefits are worth it for people who don't have huge amounts in the offset. With CBA there is a yearly fee of approx $350 to have the offset account, it's hard to work out if it will even be saving me this amount per year in interest.

#21 CallMeFeral

Posted 25 November 2012 - 10:33 PM

Audrey09, I think it's worth shopping around to find somewhere with either a redraw OR an offset account cheaply (both will have a similar interest saving). Mine costs me about $70 a year - $350 seems excessive.

In terms of what you're saying regarding withdrawing it and going back to zero, the best way I can describe it is:
- when you make a scheduled payment, some of it goes to interest (I), some of it pays the original borrowing (P)
- the amount that goes to each depends on how much interest you are liable for that month, which in turn depends on how much of the original borrowing there is left to be repaid. Over time, P gets smaller and smaller, which in turn reduces the interest, which in turn then increases the amount that gets paid off P. Towards the end of your load you'd be paying off mostly principle, at the beginning, mostly interest
- the more that goes to interest, the less goes against the initial borrowing
- by paying less interest at any given time, your original borrowing gets a little bit more paid towards it - THAT is the benefit that stays, even after you withdraw your money again. The reduction on interest in those few months that your money was there, means that a little bit more of your repayments went to reduce your P amount during that time

Hope that helps!

#22 SNT349

Posted 25 November 2012 - 10:38 PM

Your repayments will be calculated based on the amount you borrow initially.  If you pay more than the required amount, your loan will be in advance by that amount.  The repayments include the interest as well as some capital.  So say you borrow $200,000, the repayments will be based on that and if your loan is in advance by say $2000, then you only pay interest on $198,000 but your repayments stay the same.  So you are in effect paying more off your capital.  So the more in advance you are, the less interest you pay (even if only for a short period).

You should also check if there is a fee for redraw or a minimum amount.  Ours is $25 per redraw and you have to withdraw at least $2000.

Hope that makes sense.

#23 audrey09

Posted 25 November 2012 - 10:47 PM

Thanks so much ladies!  original.gif
I have many questions for my broker at our next meeting!

#24 SeaPrincess

Posted 26 November 2012 - 12:00 AM

QUOTE (audrey09 @ 25/11/2012, 08:16 PM) <{POST_SNAPBACK}>
With CBA there is a yearly fee of approx $350 to have the offset account, it's hard to work out if it will even be saving me this amount per year in interest.

A good broker should be able to tell you what sort of amount you need to keep in offset to make it worthwhile.  When we got our first mortgage, we asked about an offset account and the rep told us that because the mortgage product with offset had a higher interest rate, we needed to have roughly $10,000 in the offset as a minimum. We opted for their lower interest product with free redraw.  We do have a minimum redraw amount, but since there's no minimum to pay in, we just redraw the minimum, then put the rest back in.

R

#25 Coffeegirl

Posted 26 November 2012 - 07:07 AM

We have 2 mortgages one fixed interest, and one variable with an offset account, as well as our day-to-day saving account.  We fixed a little over 50% of or full amount as we were unsure of where he interest rates were going and we like the certainty of knowing what we owe from month to month.

My wage goes into the general savings account and is used for day to day things.  Groceries, smaller bills, gifts etc and smaller bills.  

Dh's wage (much larger than mine) goes into the offset and we have direct debits come out for larger bills like electricity, PHI, insurances etc.  The left over money just sits there and works towards offsetting some of the interest on the varianle mortgage.    Every month or so, if we have it, we put $500-1000 into the redraw part of this mortgage.  Our minimun amount to redraw is $2000 from our bank so we like to have a smaller amount sitting in the offset for smaller emergencies (like a hot water tank, or plumbing problem)

The fixed mortgage just sits there and we pay the fixed payments fortnightly

Our bank doesn't charge us any extra annually for the redraw or offset, but this is probably more to do with the size of our mortgage.   We do pay $350 a year for 'admin fees' or some odd thing and a$5/mth acct fee on the offset.  So $60/year.  

You aren't confusing the annual mortgage account fees for the entire mortgage with the offset account fees maybe?


Spelling sucks, in a hurry and can't be bothered fixing it.

Edited by Coffeegirl, 26 November 2012 - 07:09 AM.





1 user(s) are reading this topic

0 members, 1 guests, 0 anonymous users

 

Special offer: The Baby & Toddler Show 2014

At The Baby & Toddler Show, you?ll find everything you need to get ready for your new arrival and guide you through the early weeks and years of parenting.

An open letter to Tony Abbott: please salvage our super

We face financial ruin, but most of us don?t realise it. If we don?t act together to salvage our superannuation, I have no doubt the new GFC will be the Girls? Financial Crisis.

'I'm happy to know I'm changing lives': surrogate mum of two

I know that once the baby is born, I will focus on the gift I have given, and watch the parents with their new child. I can't wait for that day.

Birth trauma and the issue of informed consent

There is a perception that women should just be happy they have a healthy baby in their arms. But for women who experienced birth trauma, there's a lot more to it.

Tips for managing pollen allergies and hayfever

They're simple tips, but they can have a big impact on those who suffer from hayfever and pollen allergies.

Ada Nicodemou shares tribute to her stillborn baby

Just over one month since Ada Nicodemou and her husband lost their second son, the Home and Away star has shared a touching poem for her baby.

Mum causes stir breastfeeding on train

?To the woman breastfeeding her kid on the train. Seriously! On the train?" began the letter of complaint.

10 things they don?t tell you about being pregnant

As I slowly waddle my ever-changing pregnant body towards the finishing line of my due date, it?s becoming increasingly clear there are a lot of things they just don?t tell you about pregnancy.

Overcoming a fear of the dark

A toddler's fear of the dark is very normal, but there are ways parents can help children through this stage in their development.

Kids, TV and movies: how young is too young?

It seems you don't have to throw the TV and iPad out the window - it all boils down to moderation, supervision and interaction.

Video: Baby's first birthday is a special day for mum, too

?A baby?s first birthday is also mum?s first birthday.?

The day Supernanny came to tea

Prince William's favourite celebrity child trainer Jo Frost puts Bryony Gordon and her toddler through their paces.

The words I hated hearing as new mum

It was less than a week after my son was born that I first heard it - from my mother.

To the pharmacist who sold me baby formula

On the rare occasion I catch sight of you at school, or around town, I think back to our earliest exchange. I?m sure you have no recollection of it at all.

Babies may benefit from autism therapy

Children showing signs of autism don't usually receive early intervention until well into toddlerhood or later, but a new study suggests infants with symptoms of the developmental disorder might benefit from therapy from as early as six months.

Knatalye and Adeline born with an everlasting bond

Knatalye Hope and Adeline Faith are a lot like any other identical twin girls, but there is one dramatic difference: they're joined at the chest and shares several internal organs.

The question this dad wishes he'd asked his wife

I should have seen that my wife wasn't the same person I'd fallen in love with, but we were both too focused on simply trying to get by.

Why we should talk about the deaths of the Hunt children

The deaths are too horrible even to think about. Yet we owe it to the children - Fletcher, Mia and Phoebe Hunt - to think long and hard about it all.

Baby dies of meningococcal weeks after vaccine application denied

A six-month-old girl has died from meningococcal disease just weeks after an application for government funding of a vaccine for the most deadly strain of the virus was rejected.

Finding the right balance when playing with your kids

Being too involved in our children?s play and not allowing our kids enough free time for unstructured activities can mean our kids miss out on the value that play offers.

Creative DIY light shades

The Pop Light light shade comes in a flat pack already made - it's up to you to design it as you'd like.

The battle of iParenting versus imagination

Have we forgotten how to be imaginative, resourceful parents?

Why movement is so important for your baby's growth

Letting your child move as much as possible in the early years ? using all senses, engaging in the real world, preferably outside ? will help them grow up healthier, smarter, calmer and stronger.

Download now: Essential Kids Activity Finder app

Got bored kids? Quickly find the best activities for kids wherever you are in Australia with the Essential Kids app.

 
Advertisement
 
Advertisement
 
 
 

What's hot on EB

Special offer: The Baby & Toddler Show 2014

At The Baby & Toddler Show, you?ll find everything you need to get ready for your new arrival and guide you through the early weeks and years of parenting.

Losing yourself to motherhood

While watching your baby grow into a unique little person is exciting and wondrous, the intensity of meeting everyone else?s needs can ever so sneakily overtake your own needs for self-care.

Tearing during delivery: the facts

Almost all women will experience bruising, grazing or tearing after a vaginal birth. Depending on the degree of tearing, there are various treatments available.

6 tips for a day out with a baby and toddler

Outings can be lots of fun with the kids, but there are inevitable challenges. Here's some information about days out to help you be a little more prepared.

Why I invited a dozen people to watch my son's birth

I sent invitations on burgundy scrapbooking paper stamped with a field of poppies, and told each person why I wanted him or her there. I warned that there would be nudity.

Getting labour started: tips for a natural induction

When your baby?s due date comes and goes without so much as a pop - let alone a bang - it can be disheartening. Mums and a doula share their stories of natural inductions.

7 mistakes old hands make with new babies

As I sat across the table from my friend ? me, a seasoned mother of three; her, a brand new mum ? I thought of all the mistakes an old-hand parent can make when visiting a newborn baby.

That's my boy: a dad's diary of the first 4 months

Unbearable anxiety, unspeakable joy, constant exhaustion and bouts of frustration ... The many shocks of first-time fatherhood resound in a dad's diary of his son's early months.

One of the most important things a new mum can do

Finances may not be as cute as a newborn, but with many women?s working arrangements changing post-baby, monetary matters need attention too.

Dying mum saves baby with last breath

Dying from a gunshot wound, Jessica Arrendale used the last of her energy to hide her baby from her killer.

Personalised baby gifts

We've scoured the internet to find gorgeous personalised keepsakes and nursery decor to record baby name and dates. They make great gifts for christenings, name days and birthdays! (All prices in AU.)

 

Reader offer

2 FOR 1 TICKET OFFER

For Shopping, For Advice, For Baby & You. Enjoy a special day out with fabulous shopping from over 200 brands, leading parenting experts offering advice on a range of topics, and amazing children?s entertainment

 
Advertisement
 
 
Essential Baby and Essential Kids is the place to find parenting information and parenting support relating to conception, pregnancy, birth, babies, toddlers, kids, maternity, family budgeting, family travel, nutrition and wellbeing, family entertainment, kids entertainment, tips for the family home, child-friendly recipes and parenting. Try our pregnancy due date calculator to determine your due date, or our ovulation calculator to predict ovulation and your fertile period. Our pregnancy week by week guide shows your baby's stages of development. Access our very active mum's discussion groups in the Essential Baby forums or the Essential Kids forums to talk to mums about conception, pregnancy, birth, babies, toddlers, kids and parenting lifestyle. Essential Baby also offers a baby names database of more than 22,000 baby names, popular baby names, boys' names, girls' names and baby names advice in our baby names forum. Essential Kids features a range of free printable worksheets for kids from preschool years through to primary school years. For the latest baby clothes, maternity clothes, maternity accessories, toddler products, kids toys and kids clothing, breastfeeding and other parenting resources, check out Essential Baby and Essential Kids.