[audrey09]

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because if I use my mortgage as a savings account also, that money is being saved for a purpose so it's going to be withdrawn at some point....could be 1 year or 2 or whatever.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!!

[katrina24]

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.

[pitzinoodles]

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.

[Julie3Girls]

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.

[audrey09]

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?

[SeaPrincess]

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

[harryboy]

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.

[Foogle]

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.

[Sinister Bonnet]

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.

[BetteBoop]

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.