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Should I leave my savings in the offset or in the redraw?



Once you have decided upon a lender offering you a competitive interest rate and you are making regular home loan repayments, where will you put your savings to help benefit your property investment.

There are two options linked to your home loan – offset and redraw accounts – and they both have convenient features.

Offset

An offset account provides a way to pay less interest on your full mortgage. It works like a savings account and the more money you put in to your offset account, the less interest you pay on your mortgage.

For example, if you have a $700,000 home loan with a 2.79% interest rate and an offset account with a balance of $60,000, then you will only pay interest on $640,000 of your home loan. Your offset account balance works to reduce the home loan amount that will be charged interest.

To make the most of an offset account, you can have your salary paid in to it or use it as your emergency savings. You have instant access to the funds in your offset account if you ever need them. Fees may apply.

Redraw

A redraw account is another useful tool and is a way for you to make extra repayments on your home loan. It works as a holding account for the additional repayments you choose to make on your home loan.

For example, if your repayment amount is $2500 each month, but you pay $2800, then the extra $300 goes in to a redraw account. Over ten years, that is $36,000 of extra repayments towards your home loan, helping you to pay off your home loan much faster.

You can also make lump sum payments in to a redraw account, reducing your initial mortgage amount. You have access to remove money from a redraw account any time. Fees may apply.

Offset vs Redraw

Whilst an offset account reduces the interest on your home loan, a redraw account means you make extra repayments.

Both accounts benefit homeowners, however an offset account is readily accessible without the limitation of redraw limits and/or fees. Furthermore, for investment property owners, extra repayments in a redraw account may not be claimed as a tax deduction if withdrawn early, whereas funds in an offset account which can be withdrawn anytime results in the full mortgage balance remaining tax deductible.

Homeowners and property investors, you need to ensure that you are making the most of these home loan facilities by regularly placing money in to these accounts and seeking professional financial advice before you do.

To help you decide whether an offset or a redraw account is best for you in your personal circumstances, consult YML Group for expert financial advice.

How can YML help?

Talk to our YML Finance Team today to see how YML Group can assist you with your mortgage strategy. Contact us on (02) 8383 4400 or by visiting the Contact Us page on our website.

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