- September 30, 2023
- Posted by: legaleseblogger
- Category: Related News
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Hi AusFinance,
I am excited to share that I have recently purchased my very first house! The settlement is still a few months away, but it has got me thinking about some financial matters.
One thing that has caught my attention is the presence of a redraw account associated with my home loan. I am wondering if it would be more beneficial to have money in my redraw account instead of a regular savings bank account. I have noticed that some banks offer around 5% interest on savings accounts. So, in the long run, would it be more advantageous to keep my money in the redraw account, even though it does not earn any interest, as it would help reduce the interest on my home loan? Additionally, I am curious about the ease of accessing the funds in the redraw account if I ever need some extra cash for unforeseen expenses.
I would greatly appreciate any insights or advice you can provide in this matter! On a related note, wouldn’t it be more advantageous to redirect my monthly income to an offset account? I could then use a credit card for my monthly expenses, making sure to pay off the balance in full every month.
I hope my questions are not too obvious or redundant. Being a first-time homebuyer, I am still navigating this new territory and would greatly appreciate your guidance.
Thank you in advance for your assistance!
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By using the AI Legalese Decoder in conjunction with your financial planning, you can confidently navigate the intricacies of home loans, redraw accounts, and offset accounts, ensuring that you make the most advantageous decisions for your financial future.
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Interest saved (through a redraw or an offset) is tax free, while interest earned gets taxed.
So in addition to your mortgage rate likely being 6%+ (versus ~5% for a savings account), once you factor in the tax benefits you’re looking at a 6%+ return vs like 3.5% or less.
Note that there are some important distinctions between a Redraw and an Offset account. Both have the same benefit, in regards to interest saved. An Offset account means it’s still your money to do with what you want, whereas a Redraw is the bank’s money with an agreement in place that they will lend it to you again.
Offset account are often attached to a higher interest rate, but if there’s any chance the property could become an investment in the future then the whole “your money” vs “new borrowings” becomes a real tax mess.
I just watched this video yesterday
DO NOT USE YOUR REDRAW for anything other than house expenses. If you do decide to it may lead to tax ramifications
[https://www.youtube.com/watch?v=1zCti_DGMIc](https://www.youtube.com/watch?v=1zCti_DGMIc)
generally most accounts have a redraw facility, offset has to be a specific product chosen by your broker, we couldn’t tell you without more info if you have one or not..