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Redraw or offset mortgage


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25 replies to this topic

#1 Greatmum

Posted 26 May 2019 - 03:16 PM

We want to put full amount owing on our mortgage. R we better with offset or redraw mortgage?  Are they the same what r the differences if we have one type does it cost to change to other.

We want the money to sit there in case we need it later as probably can’t get a loan later or do we just pay it all off and close it all.

#2 BusbyWilkes

Posted 26 May 2019 - 03:22 PM

We have been told that having it in the offset (if you are dedicated enough to not take it out again) gives greater flexibility over paying off the loan. If you are in jobs that are contract or self employed, it now may be more difficult to get a new loan. Obviously seek professional advice though, rather than rely on our anecdotes.

#3 Caribou

Posted 26 May 2019 - 03:30 PM

Offset for us. There’s been moments where offset has been invaluable.

#4 Greatmum

Posted 26 May 2019 - 03:36 PM

so we shouldnt need access to the money it is mainly just to keep it open for emergency

why do you say offset has been invaluable

Sorry just trying to choose between the two and understand the differences

We have redraw at the moment

#5 Caribou

Posted 26 May 2019 - 03:40 PM

For me, unexpected expenses. Like car repairs or house repairs. While we have savings on top of that, it was a large unexpected expense.

At one stage DH lost his job. We had a buffer of 50k in offset and that tided us over for a month without both incomes. (We didn’t spent 50k, but it meant we knew it was there as a safety net.)

You still get the same as re-draw as far as I’m aware and interest reduced. But I think it’s cheaper and less complicated in offset? We have no account fees.

Edited by Caribou, 26 May 2019 - 03:41 PM.


#6 tassiekiwi

Posted 26 May 2019 - 03:43 PM

Why would you keep a mortgage account open if you have paid it off? Wouldn't it be better to redirect the amount you were using to pay your mortgage into a savings/investment account?

#7 laridae

Posted 26 May 2019 - 04:39 PM

View Posttassiekiwi, on 26 May 2019 - 03:43 PM, said:

Why would you keep a mortgage account open if you have paid it off? Wouldn't it be better to redirect the amount you were using to pay your mortgage into a savings/investment account?
You'd need to pay tax on any interest earned if it was in savings or investment.
You'd usually keep it open if you are either planning on buying another property or for other large purchases or repairs or renovations. Far easier than getting another mortgage or loan and the interest rate would be a lot lower than a personal loan.

OP, as I understand it, the difference between redraw or offset would come about if you decided to buy another house and rent out your current one. If you pay it off then redraw to buy the new one then you can't claim the interest on the original house on your tax return as an expense. But if you use the offset you can. Or something like that...

So it really depends on what your plans are. I don't think we'll be renting out this place (and in any case we wouldn't have much in redraw or offset). It costs us nothing to redraw, so I mainly use redraw (it also means we're less likely to spend it!)

#8 Greatmum

Posted 26 May 2019 - 04:47 PM

We want to keep it open cause we r not in high paying jobs as just an incase we need the money we prob wouldn’t b given a loan again.

I think redraw prob better as harder to get at but still cannot really need to.

#9 Coffeegirl

Posted 26 May 2019 - 05:26 PM

There was a rumour last year that some banks were not going to allow people to redraw any excess funds they may have in their account.     Also our redraw had a minimum redraw amount of $2000 https://www.smh.com....817-p4zy2c.html

We now just keep the money in the offset account.   Same benefit but we have easier control




This article is a good explanation of the difference https://www.yourmort...-is-best/79520/


#10 molinero

Posted 26 May 2019 - 05:34 PM

100% I would keep a savings buffer in the offset, for the reasons PPs have already canvassed.

The mortgage offset has so many benefits:

- Acts as 'back up insurance funds' in the case of ill-health, job loss, etc.

- Acts as general emergency funds

- Avoids taxation bracket creep that can come about from dedicated savings accounts or other investments

- If all your accounts are with one bank, you are probably paying just one annual package fee for everything.

Maybe just have a think about how you want this offset account structured and accessed. Do you want it linked to your internet banking or hidden so you are less likely to dip into the funds? Same with a cash card linked directly to the offset account.

#11 laridae

Posted 26 May 2019 - 07:54 PM

View PostCoffeegirl, on 26 May 2019 - 05:26 PM, said:

There was a rumour last year that some banks were not going to allow people to redraw any excess funds they may have in their account.     Also our redraw had a minimum redraw amount of $2000 https://www.smh.com....817-p4zy2c.html



That was only if for some reason you had more in redraw then your scheduled balance, eg needed a repayment holiday or something. Most people should be ahead of their scheduled balance - otherwise you aren't going to pay your mortgage off on time.

#12 NastyGal

Posted 26 May 2019 - 08:05 PM

View Postlaridae, on 26 May 2019 - 07:54 PM, said:

That was only if for some reason you had more in redraw then your scheduled balance, eg needed a repayment holiday or something. Most people should be ahead of their scheduled balance - otherwise you aren't going to pay your mortgage off on time.


Our mortgage was down to $20 so we redrew $3000 because we didn't want to pay the mortgage off as it's a handy line of credit, as PPs have said, in case of emergency.

Once we redrew the $3000 our redraw balance was reduced by over half. So for example - not actual figures - our available redraw balance was reduced from $60,000 to $25,000. So now our line of credit is less than half what it was. We still have at least 20 years left on our contract so plenty of time to pay the full balance off if required.

#13 CallMeFeral

Posted 26 May 2019 - 09:25 PM

With the offset it's considered 'your money' more than it is with a redraw, I think. A bank could decide not to let you redraw (unlikely but they could) whereas an offset it's like money in your bank account - you can do with it what you wish.

As laridae said, it's also beneficial if you ever want to rent out the place you currently have the loan in.

I would always choose offset over redraw if the cost of each are the same.

#14 Prancer is coming

Posted 26 May 2019 - 09:54 PM

We have done this recently via the redraw method.  We try and pay our loans off as quick as possible.  DH came into an inheritance to we paid it off the loan.  We poured all our savings in too and had pretty much paid it off.  However, we had no other savings so did not want to pay it off.  We also had some home maintenance planned that we wanted the money for.  The inheritance was tricky as in one way it was money we did not want, and DH was happy to store it in the loan, but felt the need for it still be seperate and to eventually do something with it.  When the balance was a few hundred, we stopped repayments and it just sat there with minimal interest payments.

We have since redrawn on it for our home maintenance.  Payments are still stopped but we will transfer money over here and there.  We want to have a good $20000 in our savings account and then will look at ending loan.  If it was in an offset (which was not available to us on our loan unless we paid extra for it) it would seem like our money where in the loan it does not seem like it is easy to spend and we have to go through the effort of redrawing to get it.

#15 Staying Strange

Posted 27 May 2019 - 07:01 AM

Have a look at the terms and conditions for your mortgage. Our offset is only n offset for $50,000 anything above that doesn't contribute to offsetting the mortgage and we'd still be paying interest on the balance of the mortgage.

#16 Caribou

Posted 27 May 2019 - 07:03 AM

View PostStaying Strange, on 27 May 2019 - 07:01 AM, said:

Have a look at the terms and conditions for your mortgage. Our offset is only n offset for $50,000 anything above that doesn't contribute to offsetting the mortgage and we'd still be paying interest on the balance of the mortgage.

Wow! That’s bad. Sorry to be blunt. We have offset and there’s no limit on offset either. If I were you shop for another bank where offset limit for interest is not capped. Especially if you’re over 50k!

#17 Staying Strange

Posted 27 May 2019 - 10:07 AM

We don't have that much in offset. It's not a problem for us .... yet. But we have a great interest rate and the comparison rate is only .01 or .02% higher than our interest rate so while we don't have 50k in offset we're happy to stay. We knew it was there when we signed up for the loan. When we have more than 50k in offset we'll consider our options.

Edited to correct error

Edited by Staying Strange, 27 May 2019 - 10:11 AM.


#18 SeaPrincess

Posted 27 May 2019 - 05:38 PM

We have both. The money in the offset account is readily available at the ATM. The money available for redraw is readily available via internet banking, but not via the phone app. Both reduce the interest payable each month.

We put most of our money in the mortgage and redraw if necessary. If we were going to basically pay it off, we'd put it in the mortgage where it's marginally less accessible.

#19 AliasMater

Posted 27 May 2019 - 05:55 PM

We have both. I prefer to put excess on the mortgage and only keep the money we will use til the next pay, accessible with the card, in the offset. That just keeps it neat really.

I can redraw as much as I want out of the mortgage at any time. It doesn't need to stay in an offset account.

#20 YodaTheWrinkledOne

Posted 27 May 2019 - 06:04 PM

We do both.

View PostAliasMater, on 27 May 2019 - 05:55 PM, said:

We have both. I prefer to put excess on the mortgage and only keep the money we will use til the next pay, accessible with the card, in the offset. That just keeps it neat really.

I can redraw as much as I want out of the mortgage at any time. It doesn't need to stay in an offset account.
this.

Offset and redraw effectively do the same thing if used correctly. However, for some people, seeing their account balance increase in the offset account (instead of putting it into the loan to redraw later) might mean they overspend. So sometimes it depends on how you manage your money. If you plan to put an extra $200 each week into your loan, can you do that effectively by using the offset only or would you be better off using a redraw?

Our offset has no balance required. I would be looking at a different product if the offset drops out if your account balance exceeds a particular limit. (But if that were the case, can you put it into the loan as redraw??)

#21 SplashingRainbows

Posted 27 May 2019 - 06:30 PM

There are different tax outcomes as to redraw v offset so worth an email to your accountant if you have one.

#22 Leopard Cub

Posted 27 May 2019 - 07:18 PM

View Posttassiekiwi, on 26 May 2019 - 03:43 PM, said:

Why would you keep a mortgage account open if you have paid it off? Wouldn't it be better to redirect the amount you were using to pay your mortgage into a savings/investment account?

You keep the account open with a balance owing of $0. You don't put more money into it. We have paid off our mortgage, but have our account still open, with a balance of $0, and a reasonable amount we can redraw in the case we need funds quickly.

The money we used to pay fortnightly to the mortgage is now going to a savings account, once we have enough buffer there, we might consider closing the mortgage account.

OP - we have redraw, if you aren't planning on turning your property into an investment property at a later date, either is fine. We have no fees on our mortgage account, and can transfer any amount (available in redraw) out to one of our linked accounts in 1 business day if needed.

#23 Feral-as-Meggs

Posted 27 May 2019 - 07:46 PM

The only real difference is if you have any plans (however vague) to rent out your home and claim a tax deduction for the interest (negative gearing).  

In that instance you want the extra money in an offset.   If it’s in a redraw and you take it back out, you can’t claim a deduction on the interest on that component of your loan.

#24 Greatmum

Posted 28 May 2019 - 09:13 AM

Thanks everyone think will stick with redraw

#25 MarigoldMadge

Posted 28 May 2019 - 09:18 AM

Check with your bank - the bank I work for doesn't want loans with a low or zero balance sitting, and will close them out.

Whereas an offset is different, as the loan is active with a balance.




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