Hello Chasers,
Buying a house is a huge achievement, but let’s be honest, managing that mortgage can feel like a marathon, especially if it is going to take 30 years to pay it off!
The good news is, there are ways to streamline your repayments and save a stack of cash on interest. Enter offset accounts and redraw features – two smart tools that can make a big difference.
Understanding Your Debt Management Tools
Before we dive into these, let’s talk about debt management in general. The more you can chip away at your loan balance, the less interest you’ll pay in the long run. That’s where offset and redraw come in!
The Tools: Offset vs Redraw
These two may sound similar, but they work in slightly different ways.
- Redraw: Your Loan’s Secret Stash Think of redraw as a built-in piggy bank for your home loan. Make extra repayments on top of your regular ones, and this extra cash gets stashed away. Need that money later for emergencies or home improvements? No problem, you can simply “redraw” it! Just remember, as you make your regular repayments, that extra stash gets smaller.
- Offset: The Super Savings Account An offset account is like a regular savings account, but it’s linked to your home loan like a super savings account. The more money you keep in this account, the lower your loan interest! Why? Because the balance in your offset is deducted from your loan balance for interest calculations. This means less loan, less interest! However, keep in mind that as your account balance fluctuates, so do the interest savings.
Spotting the Differences: It’s All About Access
The key difference lies in how you access your extra money. With redraw, it’s deposited directly into your loan, reducing the balance. With offset, it sits in a separate account, readily available for whenever you need it.
Reducing Interest: The Common Goal
Both offset and redraw are superstars when it comes to reducing interest. By making extra payments or keeping extra funds in your offset account, you’re effectively lowering your loan balance, which translates to less interest to fork over.
Choosing Your Saving Tool: It’s All About You!
So, which one is your perfect match? It depends on your money management style.
- Team Redraw: If you’re a regular extra-payment-making machine or love the idea of a rainy-day emergency fund within your loan, redraw might be your champion.
- Team Offset: If you prefer easy access to your cash and like the idea of everything in one place, then offset could be your hero.
Pro Tip: Don’t Forget the Tax Implications!
If you’re planning on turning your home into an investment property, there can be tax considerations for both offset and redraw. Chat with a financial advisor to make sure you’re choosing the option that best suits your situation.
Redraw vs Line of Credit: Don’t Get Confused!
While redraw and offset are often mentioned together, they have a different purpose than a line of credit. Redraw and offset help you manage your existing loan and save on interest. A line of credit, on the other hand, is more like a flexible loan that lets you borrow extra money as needed. This is perfect if you’ve paid off a chunk of your home loan and want to access the equity for renovations or other expenses.
The Takeaway: Both are Great Tools!
Redraw and offset accounts are powerful tools to help you save on your home loan interest. By understanding how they work and considering your financial personality, you can choose the cone that best helps you conquer your mortgage!
Reach out to our Team on 0355612643 if you want to explore these further.
Have a great day!
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General advice disclaimer
The advice provided is general advice only as, in preparing it, we did not take into account your investment objectives, financial situation or particular needs. Before making an investment decision on the basis of this advice, you should consider how appropriate the advice is to your particular investment needs, and objectives. You should also consider the relevant Product Disclosure Statement before making any decision relating to a financial product.
Only lending advice provided by CeebeksTM Financial Solutions is associated with Outsource Financial Ltd Credit Representative 396061.
Chris Beks is a director of CeebeksTM Financial Solutions and a Credit Representative (credit representative no. 396061) of Outsource Financial Ltd Limited ABN 42 131 090 705; Licence Number 384324 an independently owned and operated Aggregator, and is authorised to provide personal credit advice. For more information, you can read our Credit Guide, or contact us for more information on our available services.
