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Unexpected large financial outlay
Would you use redraw or savings?

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9 replies to this topic

#1 indigogirl

Posted 23 January 2013 - 12:27 PM


We have been going financially backwards for a while now as I am not working after baby number 2. We have minimal savings and what we do have we have been using slowly for living expenses when required.

This has been stressful at times but generally we are ok and happy with our decisions as I really wanted some home time and we are not big spenders. I have some casual work coming up that would have tided us over except.....

We suddenly have some urgent house repairs required as it has become really dangerous for us and our children. It is a completely unexpected, unbudgeted for financial expense that will cost about $5000 to fix.

We can either use our savings or our redraw but this expense would basically clear us out of which ever option we went with.

I'm interested to know which way you would go.

Unfortunately putting off the repairs until we are in a better financial situation isnt an option or we would do that.


#2 lizzzard

Posted 23 January 2013 - 12:30 PM

What do you need to do to the house? Maybe someone will be able to come up with an alternative, lower cost solution?

#3 erypmaV

Posted 23 January 2013 - 12:34 PM

I'd use savings, they don't charge interest.
If it becomes an issue later, you can top up your savings account with the redraw then.

#4 laridae

Posted 23 January 2013 - 12:35 PM

I would redraw.  You can only redraw if you've already paid extra, so it'll set you back a little in paying off your mortgage (but still on schedule to pay it off by the due date), but probably not that much.  When you are earning again, just make sure you put it back as soon as you can.

From the sounds of things you will use up all your savings anyway, so will need to redraw in the near future after paying the bill, and most banks have a minimum amount you can redraw.

Just be warned though - your mortgage repayments may go up after a redraw.

Another option may be to check with the bank and see if you can lower repayments, don't know when you got your loan, but interest rates have probably dropped and you may be paying off the repayment needed for the higher rate, so they may be able to lower it.
That might give you enough extra so you don't need to dip into your savings for living on, so you could then use it for the bill.

Edited by laridae, 23 January 2013 - 12:39 PM.

#5 Julie3Girls

Posted 23 January 2013 - 12:44 PM

Combination of both?
If you are using your savings slowly for daily living expenses, then obviously you are going to need to keep something in there.
Work out how much you need to keep in there to get you through until you are earning again, and then redraw to top up however much you need.

Eg. if you have $5k in savings, redraw $1k into your savings account and then pay your 5K house repairs out of there.

Oh, and obviously, check the minimum you can redraw original.gif

#6 B.feral3

Posted 23 January 2013 - 12:47 PM

Saving are no good to you whilst you have debt. Repairs aside, I would have put all of your savings either into redraw or 100% offset to save you interest on your mortgage. Any interest you make on you savings is not as much as you will save on your mortgage, and you pay tax on it too.

That said, I'd use the savings. What you are in advance on your mortgage (your redraw amount) is essentially savings as well anyway but it's in a better place so leave it there. Then, as you start to save again, put it straight onto the mortgage with the option to redraw without penalty.

#7 CallMeFeral

Posted 23 January 2013 - 12:51 PM

QUOTE (Bek+3 @ 23/01/2013, 01:47 PM) <{POST_SNAPBACK}>
Saving are no good to you whilst you have debt. Repairs aside, I would have put all of your savings either into redraw or 100% offset to save you interest on your mortgage. Any interest you make on you savings is not as much as you will save on your mortgage, and you pay tax on it too.

That said, I'd use the savings. What you are in advance on your mortgage (your redraw amount) is essentially savings as well anyway but it's in a better place so leave it there. Then, as you start to save again, put it straight onto the mortgage with the option to redraw without penalty.

This. I would never have savings while I had a non deductible debt. If you want to keep stuff quarantined, set up a separate offset account for it, but don't keep it in a savings account.

#8 middle

Posted 23 January 2013 - 01:52 PM

could you use half of the money from your redraw and half from the savings

#9 mummy.to.one

Posted 23 January 2013 - 02:30 PM

I would use the redraw. If its going to clear out your savings then keep that there and use the redraw facility.

I like to have cash readily available so would like to keep my savings in tact if possible.

Like a pp said look if your mortgage repayments will increase, that may influence your decision. Also can you get the repairs on an interest free plan at all through the company doing them? Of course that depends on what it is.

#10 indigogirl

Posted 23 January 2013 - 05:29 PM

Thanks everyone, some great tips to consider

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