Browse Forums Home Finance Re: Is it worth having redraw on the Home Loan? 3Mar 31, 2010 1:10 pm It depends on the reason for redraw. If you are redrawing to buy a car, then it probably is the cheapest way of doing so, as the interst rate will be lower than that of the financing company. Having said this, lots of car finance companys are wisening up to this fact and have lowered their rates very clos to that of the home loan rates. If you are redrawing for a holiday - stop right there. Nothing worse than eating into the hard earned equity of your home. Suburbia is where the developer bulldozes out the trees, then names the streets after them. Re: Is it worth having redraw on the Home Loan? 4Mar 31, 2010 1:15 pm Having been a mortgage broker for about 7 years.... Yes, Redraw is very handy provided it is used for the right reasons. For example, we have redraw on our mortgage and we basically use it as a savings account that is only drawn upon when bigger bills (rego's, rates etc) come in. As xanthrope mentioned it is not such a good tool, if when you have enough equity you just blow it on a holiday.... Another option you may be able to look at is an "Offset account". Generally these accounts work exactly like an everyday transaction account (ie. Card access, unlimited transactions etc), but the interest on your loan is calculated on your loan balance less your account balance.....eg... If your situation was: $100000 Loan Balance $10000 Offset account balance Then you would only be paying interest on $90000.... Re: Is it worth having redraw on the Home Loan? 5Mar 31, 2010 1:22 pm ^^ Oohhh... I like that idea Benny J! I should go and have a word with my bank. viewtopic.php?f=31&t=22766 - my build thread! Time waits for no man. Unless that man is Chuck Norris. Re: Is it worth having redraw on the Home Loan? 6Mar 31, 2010 1:25 pm xanthrope It depends on the reason for redraw. If you are redrawing to buy a car, then it probably is the cheapest way of doing so, as the interst rate will be lower than that of the financing company. Having said this, lots of car finance companys are wisening up to this fact and have lowered their rates very clos to that of the home loan rates. If you are redrawing for a holiday - stop right there. Nothing worse than eating into the hard earned equity of your home. Great answer. If I was a first home buyer then I would have no redraw. I think its really important to pay off a large portion of your first mortgage as most people upgrade after 7 years to a larger home. I think when you first start out, some self discilpline when it comes to your finances wont go astray. if you do have redraw, the danger is that its used for doodads like expensive cars, furniture and holidays....after a while you will find you owe more on your loan than what you started with. Redraw is good if you are investing and need quick cash for a deposit on a investment property but thats another topic. Mrs B Re: Is it worth having redraw on the Home Loan? 7Mar 31, 2010 1:31 pm Benny J Having been a mortgage broker for about 7 years.... Yes, Redraw is very handy provided it is used for the right reasons. For example, we have redraw on our mortgage and we basically use it as a savings account that is only drawn upon when bigger bills (rego's, rates etc) come in. As xanthrope mentioned it is not such a good tool, if when you have enough equity you just blow it on a holiday.... Another option you may be able to look at is an "Offset account". Generally these accounts work exactly like an everyday transaction account (ie. Card access, unlimited transactions etc), but the interest on your loan is calculated on your loan balance less your account balance.....eg... If your situation was: $100000 Loan Balance $10000 Offset account balance Then you would only be paying interest on $90000.... I'm not a mortgage broker but an offset account is one the best invention I've seen for mortgages. While paying off my mortgage for the land, I have kept all the cash aside in the offset which saves me interest on the loan every month. As I am still constructing, it's handy to have the surplus cash around for variations and stuff while at the same time saving me interest. Redraw I suppose is similar, but I think you need to get the bank involved everytime you want to redraw. Why not have an offset account with redraw facility cheers jim Re: Is it worth having redraw on the Home Loan? 8Mar 31, 2010 1:40 pm I have always had 100% offset accounts. The ability to redraw has always been standard with these accounts, but my wife and I have the discipline NOT to dig into any overpayments we hav made over the months. Think about the amount of interest you are saving - its a whopper !! and guess what: Its positive cash flow which is not getting taxed by the feds - hoorah! Be disiciplined - (1) Do not spend your equity on things you would like to have - only on emergencies (2) If you have to redraw - use it on an investment property or a car that you really need. (3) Do not use redraw on holidays and other luxuries (4) Live within your means (I know I'm starting to rant here....) The list could go on, but the bottom line really is - be disciplined.Go for a 100% offset account, put extra money into your home loan and do not redraw. Better still, ask your bank to consolidate any reserve and recalculate your monthly repayments. Suburbia is where the developer bulldozes out the trees, then names the streets after them. Re: Is it worth having redraw on the Home Loan? 9Mar 31, 2010 3:45 pm I know Comm bank only allow redraw accounts on certain loans and not offset accounts. we went with Economiser and were told that we have the redraw facility but not offset account. Site Start: 10th September, 2010 PCI : Friday 27th January, 2011. Handover: 3rd February, 2011 Build Thread: viewtopic.php?f=31&t=37677 Re: Is it worth having redraw on the Home Loan? 10Mar 31, 2010 4:27 pm We have redraw on our land loan and have quite a bit 'extra' sitting in there and reducing our interest. It costs us $50 to redraw but we've never used it until recently to buy a new car. Custom European Cabinets - Melbourne Kitchen Specialist PM for business details as website currently being updated! Our Crazy Owner Builder Journey! Re: Is it worth having redraw on the Home Loan? 11Mar 31, 2010 5:35 pm We have both, an offset account and redraw facility. You can set the redraw up so that it requires 2 signatures (for joint accounts) and the withdrawal to be done at a branch. This makes it harder to just grab the cash via internet banking and more thought has to go into making the decision to redraw. However, I think it's handy to have incase something unexpected happens and a larger amount of cash is needed urgently. Blog: http://bluemistkids.blogspot.com "Never be afraid to try something new. Remember, amateurs built the ark, and professionals built the Titanic." Re: Is it worth having redraw on the Home Loan? 12Mar 31, 2010 7:05 pm We were looking at having an offset account.When we purchased our 3rd property we just set them all up into a portfolio facility. We put every dollar extra into it and redraw if we need it which is rarely. It is there if we need it and the porfolio limit is above our total mortgage so its easy money to pull if we need it. We can pull money from it on our internet banking whenever we want. Re: Is it worth having redraw on the Home Loan? 13Mar 31, 2010 8:54 pm I like re-draw facility - but we are disciplined and dont do anything silly with it. On our old mortage we re-drew 3 times - one for a second hand car - much cheaper to pay back than any other loan and we really did need another car - one for an investment unit and one for the land for our new house. With our credit union you can only redraw what you have paid over the minimum payments, minimum re-draw of $1000 per time and $15 charge. 2 signatures required on joint accounts. They told me this is really just to stop people frittering away small amounts and to encourage them to only use it for worth while purposes. As well as paying extra money on your mortage that you know you can redraw later if need be, it also allows you to temporarily deposit large lump sums and reduce your interest - basically the same as an offset account, I guess. For example, when we sold our investment unit we had the money for CGT which would have to be paid around 9 months later - stuck it safely away in mortgage account saveing us loan interest. Re: Is it worth having redraw on the Home Loan? 14Apr 02, 2010 1:32 pm this is a very enlightening thread. I have approved the economiser like Ring09 has, and it does not have an offset account, only the re-draw. from what I gather here, off-set account is better. I think I have to try to get a loan with that 100% off-set VICTORY 1800, EN-SUITE, DOUBLE GARAGE, FAMILY ROOM AND ALFRESCO Land Settled: 20 July 2010 Site Scrap: 30 August 2010 Slab Pour: 20 September 2010 Frame Complete: 23 September 2010 Fascia and Gutters: 28 September 2010 Roof Complete: 06 October 2010 Lock-up complete: 28 October 2010 Plaster complete: 29 October 2010 Fix-out complete: 22 Nov 2010 PCI 7 FEBRUARY 2011 Re: Is it worth having redraw on the Home Loan? 15Apr 09, 2010 12:24 am Be carefull if paying your martgage off quicker and using the redraw facility if you need cash. Depending on what you do with this property later in life means you being able to claim tax on the interest if you ever use this property as an investment. Offset accounts are good if used properly, if not used properly they will cost you money. Also, make sure you have a 100% offset account, you may be surprised how many offset accounts out there aren't actually 100% offset. Depending on your personal circumstance depends if offset or redraw is better for you. Talk to your bank / broker about the difference and also talk to a financial planner / broker / accountant about future use of the property and the best structure now. You might be best to have an I/O loan with an offset so you can gain the maximum tax benifiets later. Re: Is it worth having redraw on the Home Loan? 16Apr 09, 2010 4:36 pm We have redraw on our loan and use it very differently to what everyone else has said so far. We transfer our pays to the loan (so it builds up the redraw). We purchase everything with credit card and once a month pay off the full amount owing on the credit card (not just the minimum repayment). I have also set up scheduling in netbank to transfer money from the redraw to our savings account to pay the fortnightly repayments. The only drawback I note is the minimum transfer is $500. I am never charged for redraws. Built The Huntley 290 with HomeXcellance / Cheviot Homes Re: Is it worth having redraw on the Home Loan? 17Apr 09, 2010 6:03 pm Fredstar, that sounds more like a line of credit loan. We were offerred one of those but declined - I like to see my mortgage separate and haveing my money in separate accounts - ie mortgage, saveings, everyday use - works better for me. I know line of credit loans can work well for some people (yourself included) but I think many people have difficulty with them. Likewise Glenglen, I know concentrating on paying off my mortgage works for me - I dont think I would have the same discipline doing it the way you suggest, just in case of the unlikely event it is later a rented property. At the same time, I have the security of being able to redraw the money if I need to. Re: Is it worth having redraw on the Home Loan? 18Apr 13, 2010 10:10 pm We have both redraw and a MISA (mortgage interest saver account). We have funds in our MISA that we don't intend on touching such as money put away for our kids schooling but we use our redraw similar to what BennyJ mentioned. I add up all our large bills for the year such as rates, regos, insurances, electricity and divide them by 26. This is the amount we pay in addition to our home loan repayments each fortnight. I keep my own little record of how much "bills money" we have put aside on our loan and when a bill comes in that is covered by those funds we draw that amount out. This way we have the money saved for the bill and instead of earning crappy interest in a savings account we are saving some interest on our home loan. Our minimum redraw is $500 so if a bill is say $350 I just redraw $500 and then deposit the $150 straight back in. Re: Is it worth having redraw on the Home Loan? 19Jun 16, 2010 1:07 pm I have redraw. I will funnel as much money into my loan, and once i am ready to build/buy another house in a year or 2 years time, i will redraw all additional repayments to my new residence. this will increase my interest payments for my previous house (which has now become an investment property), and i will tax deduct this interest. This will be my approach, not sure how good it is though. anyone got any advice/insight? Re: Is it worth having redraw on the Home Loan? 20Jun 16, 2010 4:32 pm lplau, We did a similar thing, however with an offset account. We bought our current house with an offset account on our mortgage and paid minimum payments to the loan. This meant that the loan value did not go down too much, however our offset and savings went up meaning that our interest was reduced. We are now in the position where we are going to rent out our current house once our new house is built and we can convert the loan into interest only and the interest payment become fully tax deductible. 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